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EX-32 - CERTIFICATION OF THE CFO - HASCO Medical, Inc.ex_32-2.htm
EX-32 - CERTIFICATION OF THE CEO - HASCO Medical, Inc.ex_32-1.htm
EX-31 - CERTIFICATION OF THE CFO - HASCO Medical, Inc.ex_31-2.htm
EX-31 - CERTIFICATION OF THE CEO - HASCO Medical, Inc.ex_31-1.htm
EX-21 - SUBSIDIARIES OF HASCO MEDICAL INC. - HASCO Medical, Inc.ex_21-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K


(Mark One)


[√]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 2013


or


[  ]

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from __________________ to ____________________


Commission file number:  000-52422


HASCO Medical, Inc.

(Exact name of registrant as specified in its charter)


Florida

65-0924471

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)


15928 Midway Road, Addison, TX

75001

(Address of principal executive offices)

(Zip Code)


Registrant’s telephone number, including area code:  (214) 302-0930


Securities registered under Section 12(b) of the Act:


Title of each class

Name of each exchange on which registered

None

Not applicable


Securities registered under Section 12(g) of the Act:


Common stock

(Title of class)


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

[  ] Yes    [√] No


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

[  ] Yes    [√] No


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

[  ] Yes    [√] No


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

[√ ] Yes    [  ] No




Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

[  ]    


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company:


Large accelerated filer

[  ]

Accelerated filer

[  ]

Non-accelerated filer

[  ] (Do not check if smaller reporting company)

Smaller reporting company

[√]


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

[  ] Yes    [√] No


State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $9,805,699 on June 30, 2013.


APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS

DURING THE PRECEDING FIVE YEARS


Indicate by check mark whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.

[  ] Yes    [  ] No


APPLICABLE ONLY TO CORPORATE ISSUERS


Indicate the number of shares outstanding of each of the issuer’s classes of stock, as of the latest practicable date.


Class of Securities

 

Shares Outstanding at July 30, 2014

Common Stock, $0.001 par value

 

997,705,656


DOCUMENTS INCORPORATED BY REFERENCE: NONE


- 2 -



HASCO MEDICAL, INC.

FORM 10-K

TABLE OF CONTENTS

 

 

 

Page No.

Part I

Item 1.

Business.

5

Item 1A.

Risk Factors.

8

Item 1B.

Unresolved Staff Comments.

13

Item 2.

Properties.

13

Item 3.

Legal Proceedings.

14

Item 4.

Mine Safety Disclosures.

14

 

Part II

 

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

14

Item 6.

Selected Financial Data.

15

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

15

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

23

Item 8.

Financial Statements and Supplementary Data.

23

Item 9.

Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.

23

Item 9A.

Controls and Procedures.

24

Item 9B.

Other Information.

26

 

Part III

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance.

26

Item 11.

Executive Compensation.

30

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

31

Item 13.

Certain Relationships and Related Transactions, and Director Independence.

32

Item 14.

Principal Accountant Fees and Services.

33

 

Part IV

 

 

 

Item 15.

Exhibits, Financial Statement Schedules.

34


- 3 -



FORWARD–LOOKING STATEMENTS


This Annual Report on Form 10-K (including the section regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations) and any documents incorporated by reference herein or therein may contain “forward-looking statements”. Forward-looking statements reflect management’s current view about future beliefs, plans, objectives, goals or expectations. When used in such documents, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions, as they relate to us or our management, identify forward-looking statements. Such statements include, but are not limited to, statements relating to our business goals, business strategy, our future operating results and liquidity and capital resources outlook. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Our actual results may differ materially from those contemplated by these forward-looking statements. They are neither statements of historical fact nor guarantees or assurance of future performance.  Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events.


Important factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation, a decline in general economic conditions nationally and internationally; decreased demand for our products and services: a change in the market acceptance of our products and services; our ability to protect our intellectual property rights; the impact of any infringement actions or other litigation brought against us; competition from other providers and products; our ability to develop and commercialize new and improved products and services; our ability to raise capital to fund continuing operations; changes in government regulation; our ability to complete customer transactions and capital raising transactions; and other factors (including the risks contained in the sections of this annual report entitled “Risk Factors”) relating to our industry, our operations and results of operations or any businesses that may be acquired by us. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned. We file reports with the Securities and Exchange Commission (“SEC”). Our electronic filings with the United States Securities and Exchange Commission (including our Annual Reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to these reports) are available free of charge on the Securities and Exchange Commission’s website at http://www.sec.gov. You can also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.


The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this annual report and other reports we have filed or will file with the SEC and which are incorporated by reference herein, including statements under the caption “Risk Factors” and “Forward-Looking Statements” in such reports.  Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these.

 

OTHER PERTINENT INFORMATION

 

When used in this annual report, the terms “HASCO,” “the Company,” ” we,” “our,” and “us” refers to Hasco Medical, Inc., a Florida corporation, and our subsidiaries.  “Management” refers to the executive officers of Hasco Medical, Inc. and any of its subsidiaries.


- 4 -



PART I


ITEM 1.

DESCRIPTION OF BUSINESS


General development of business


Hasco Medical, Inc., formerly BBC Graphics of Palm Beach Inc. was incorporated in May 1999 under the laws of the State of Florida. Through a series of transactions, BBC Graphics of Palm Beach Inc. (at the time an inactive corporation) became Hasco Medical, Inc. (Hasco).  Concurrently, Hasco Medical, Inc. acquired Southern Medical & Mobility.  In May, 2011, Hasco acquired Mobility Freedom, Inc. and Wheelchair Vans of America.  In November, 2011, Hasco acquired Certified Medical Systems II (Certified Medical).  A more detailed description of these transactions is contained in our 10-K filing with the Securities and Exchange Commission for the period ended December 31, 2012. On March 1, 2012, Hasco Medical, Inc. completed the acquisition of Ride-Away Handicap Equipment Corp., a closely-held New Hampshire corporation (Ride-Away).  On September 4, 2013, Hasco Medical, Inc. completed the acquisition of Auto Mobility Sales, Inc. (Auto Mobility).


Financial information about industry segments


The Company’s operations involve servicing customers through (i) its Home Healthcare Products and Services segment and (ii) Modified Mobility Vehicles and related products and services segment.  In accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 280-50-16 “Segment Reporting”, Management has determined that the Home Healthcare Products segment, which comprises of 0.76% of total revenues as of December 31, 2013, is not material and will not be separately discussed or disclosed in this document.


Narrative description of business


Historically, our operations were focused on the provision of a diversified range of home health care services and products.  Following our May 2011 acquisition of Mobility Freedom and our March 2012 acquisition of Ride-Away, our operations are conducted within one major business unit:


·

Modified Mobility Vehicles – conducts sales of handicap accessible vans, parts and services as well as the rental of such vehicles.  This segment consists of Ride-Away Handicap Equipment Corp. which has eleven locations from Maine to Florida, Mobility Freedom Inc. which has five locations in Florida and includes “Wheelchair Vans of America” operating our van rental operations, and Auto Mobility Sales, Inc., which has two (2) locations in Florida.


With our acquisitions of Mobility Freedom, Ride-Away, and Auto Mobility Sales, our Modified Mobility Vehicles segment comprises more than 97% of our consolidated revenues.  As a consequence and for purposes of consolidated financial statement presentation, our Home Health Care segment is no longer materially relevant when considering the consolidated financial statements as a whole.


Our corporate headquarters and principle corporate operations are conducted in Addison, Texas, a northern suburb of Dallas, Texas.  We also house a portion of our corporate operations in Londonderry, New Hampshire.  Hasco Medical Inc. is a Florida corporation.  


Modified Mobility Vehicles


Ride-Away and Mobility Freedom serve individuals with physical limitations that need specialty equipment in order to safely operate their vehicle.  We also provide products for families and care-givers with transport requirements for those under care.  In certain circumstances both the van itself and its specialty equipment is paid for directly by a federal or state agency.  For the years ended December 31, 2013 and 2012, approximately 26% and 16%, respectively, of the Modified Mobility Vehicles segments revenue was derived from veterans receiving benefits from the United States Department of Veterans Affairs (the “VA”).  Mobility Freedom and Ride-Away are both a VA and Vocational Rehabilitation (VR) certified vendors in all the states in which we operate.

Ride-Away has twelve corporate owned stores which are located in Beltsville, MD, East Hartford, CT, Essex Junction, VT, Gray, ME, Londonderry, NH, Norfolk, VA, Norristown, PA, North Attleboro, MA, Norwood, MA, Richmond VA, and Tampa, FL and Astoria, NY.  Mobility Freedom has five corporate owned stores located in Orlando, Largo, Clermont, Bunnell and Ocala, Florida.  Auto Mobility Sales has locations in Fort Lauderdale and Lake Worth, Florida.


Wheelchair Vans of America specializes in renting conversion vans to disabled individuals, and is located in Orlando, Florida. Our rental operations compliment the retail products we provide through our Mobility Freedom and Ride-Away subsidiaries.


5



Discontinued Operations


During the second quarter of 2013, the Company initiated a plan to liquidate the division of Southern Medical and Mobility. These operations were originally reported in the Home Health Care segment. The Company assessed the fair value of the operations less the disposal costs and concluded there is no impairment of the carrying value of the assets.


The following table provides examples of the services and products in each service line:


Service Line

 

Examples of Services and Products

Home respiratory equipment

 

Provision of oxygen systems, obstructive sleep apnea equipment, and nebulizers.

 

 

 

Home medical equipment

 

Provision of customer safety items, ambulatory aids and in-home equipment, such as wheelchairs and hospital beds.


Business Strategy


Organization


Through its corporate office, the Company provides support, compliance oversight and training, marketing and managed care expertise, sales training and support, and financial and information systems to our subsidiaries.  Services performed at the corporate office include financial and accounting functions, treasury, corporate compliance, human resources, sales and marketing support, regulatory affairs and licensure, and information system design.  Management is focused on revenue development and cost control, and decision-making to improve responsiveness and to ensure quality.


Commitment to Quality


The Company maintains quality and performance improvement programs related to the proper implementation of its service standards.


Training and Retention of Quality Personnel. 


Management recognizes that the Company’s business depends on its personnel. The Company attempts to recruit knowledgeable talent for all positions including account executives that are capable of gaining new business from the local medical community. In addition, the Company provides appropriate training and orientation to its employees.


We continually train our employees on the operation of our management and information systems.


Management Information Systems


Our information and customer relations management systems are unique to the industry and enable us to continually track our sales and service operations, as well as to monitor key statistical data such as accounts receivables, payer mix, cash collections, revenue mix and expense trends.  Management believes that periodic refinement and upgrading of these systems is essential.  . The Company also maintains a communication network that provides company-wide access to email and the Internet.


Corporate Compliance 


The Company’s goal is to operate its business with honesty and integrity and in compliance with the numerous laws and regulations that govern its operations. The Company’s corporate compliance program is designed to help accomplish these goals through employee training and education, a confidential disclosure program, written policy guidelines, periodic reviews, compliance audits, and other programs.


Revenues


A portion of the Company’s revenues is derived from third-party payers including the United States Department of Veterans Affairs (“VA”).  The VA is a government-run military veteran benefit system with cabinet-level status, and is the second-largest of the 15 cabinet-level departments. The VA provides customer care and federal benefits as well as financial assistance programs to US military veterans and their dependents.   We provide equipment and services to persons eligible for VA benefits in the regions covered. Through Ride-Away, Mobility Freedom and Auto Mobility Sales, we are a federal VA and Vocational Rehabilitation (VR) state certified vendor


6



The Modified Mobility Vehicles Segment also receives revenues from third-party payers.  Revenues are recorded at the expected reimbursement rates when services are provided, merchandise is delivered, or equipment is rented to customers. Revenues are recorded at net realizable amounts estimated to be paid by customers and third party payers. Our billing system contains payer-specific price tables that reflect fee-schedule amounts as available, in effect or contractually agreed upon by various government and commercial payers for each item of equipment or supply provided to a customer. Net revenues are recorded based upon the applicable fee schedule.  


Revenues and related services include all product sales to customers and are derived from the sale and rental of wheelchair vans, wheelchair lifts, and service on wheelchair vans. Sales taxes are recognized at the time of delivery and recorded at the expected payment amount based upon the type of sales taxes collected from customers and remitted to governmental authorities.  Sales Tax is accounted for on a net basis, and therefore, are excluded from revenues in the statements of operations.


Because the Company derives a significant portion of its revenues from the United States Department of Veterans Affairs, material changes in reimbursement policies have a material impact on its revenues and consequently, on the Company’s business operations and financial results. Reimbursement levels typically are subject to downward pressure as the federal and state governments and managed care payers seek to reduce payments.


Management is working to counter the adverse impact of any future reimbursement reductions through a variety of initiatives designed to grow revenues and improve productivity by cost efficiencies and reductions. The magnitude of the adverse impact that reimbursement reductions will have on the Company’s future operating results and financial condition will depend upon the success of the Company’s revenue growth and cost reduction initiatives. Nevertheless, the adverse impact could be material.


Collections


The Company has three key initiatives in place to maintain and/or improve collections of accounts receivable: (i) proper staffing and training; (ii) process redesign and standardization; and (iii) billing center specific goals geared toward improved cash collections and reduced accounts receivable.


Net accounts receivable at December 31, 2013 was $6,182,680, compared to net accounts receivable of $7,116,008 at December 31, 2012.


We derive a portion of our revenue from reimbursement by third-party payers. The following table sets forth, for the periods indicated, the percentage of our total revenues derived from different types of payers.


 

 

Year Ended December 31,

 

Payers

 

2013

 

 

2012

 

Veterans Affairs and Veteran programs

 

 

26

%

 

 

16

%

Direct and third party payment

 

 

74

 

 

84

%

 

 

 

 

 

 

 

 

 

 

 

 

100

%

 

 

100

%


An important indicator of the Company’s accounts receivable collection efforts is the monitoring of the days sales outstanding (“DSO”). Management monitors DSO trends for the Company as part of the management of the billing and collections process. An increase in DSO usually results from slow-down in the timeliness of payment processing by payers.  A decline in DSO usually results from process improvements or more timely payment processing by payers. Management uses DSO trends to monitor, evaluate and improve the performance of the billing process.  The table below shows the Company’s DSO for the periods indicated and is calculated by dividing customer accounts receivable by the average daily revenue for the previous 90 days, net of bad debt expense for type of payer:


 

2013

 

2012

Veteran’s Affairs

92 days

 

99 days

Private Payers

22 days

 

24 days

 

 

 

 

Modified Mobility Vehicles

35 days

 

38 days


The Company’s level of DSO and net customer receivables is affected by the extended time required to obtain necessary billing documentation.


7



Sales and Marketing


The Company has increased its focus on growth through acquisition as well as by sales and marketing efforts.  The Company has also developed strategic partnerships over the past several years in an effort to improve revenues. During this time, management implemented changes designed to improve the effectiveness of the Company’s selling efforts. These include revisions to the Account Executive commission plans and a restructuring of the sales organization.  Management believes these actions have resulted in a more focused sales management team.


The Company’s sales and marketing focus for 2014 and beyond includes: (i) the continuing development of market share in existing sales territories; (ii) sales process and training programs to continue our development of existing sales consultants and the training and development of new sales; (iii) strengthening its sales and marketing efforts through a variety of programs and initiatives; and (iv) expanding managed care revenue through greater management attention and prioritization of payers to secure managed care contracts at acceptable levels of profitability.  Improvement in the Company’s ability to grow revenues will be critical to the Company’s success. Management will continue to review and monitor progress with its sales and marketing efforts.


Competition


Modified Mobility Vehicles


Most modified mobility vehicles markets are granted by the major manufacturers to dealers under a system of protected exclusive territories.  Contractually we must maintain certain criteria to retain our territories; most notably we must maintain a minimum unit sales volume.  The Company was in compliance with all such agreements as of December 31, 2013.  Management believes the primary competitive factor in modified mobility vehicles sales is obtaining these protected territories from major manufacturers.


Modified mobility vehicles rental competition varies.  Our competition can range from national franchise companies, to companies that perform van rentals as a side-business of their van sales, all the way down to small single-market companies. We believe there are relatively few barriers to entry in the local markets served by the Company, with the most notable hurdle being the size of the initial capital outlay required.  Therefore, the Company could encounter competition from new market entrants.  Of the markets we serve in modified mobility vehicles rental, we believe the Orlando market has a heavier concentration of competition which serves the tourist draw to area attractions.


Vendor Concentration


The Company has a single vendor that represents 58% of our purchases.  Our relationship with this vendor is excellent and we do not anticipate any change in the status of that relationship.  Should there be any such change; management believes that substantially similar products are available from other competitive vendors at terms that will not have a substantial effect on our financial condition.


Employees

 

At December 31, 2013, the Company had 241 employees.   None of our employees are covered by collective bargaining agreements. We believe the relations between management and employees are good.


ITEM 1A.

RISK FACTORS


You should carefully consider each of the following risks and all of the other information set forth in this Annual Report on Form 10-K. Based on the information currently known to us, we believe that the following information identifies the most significant risk factors affecting our Company in each of these categories of risk. However, the risks and uncertainties our Company faces are not limited to those described below. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.


RISKS RELATED TO OUR RELIANCE ON VETERAN’S ADMINISTRATION, MEDICARE, MEDICAID AND OTHER THIRD-PARTY REIMBURSEMENT


THE COST OF SUBSTANTIAL PORTION OF MODIFIED MOBILITY VEHICLES IS FUNDED BY GOVERNMENT AND NON-PROFIT THIRD PARTIES. IF THIS FUNDING IS REDUCED OR BECOMES LIMITED OR UNAVAILABLE TO OUR CUSTOMERS, OUR BUSINESS MAY BE ADVERSELY IMPACTED.


8



Risks Related to our Modified Mobility Vehicles Segment


Third-party payers include Veterans Administration, and non-profit third parties. Third-party payers continue to challenge prices charged for modified mobility vehicles. We cannot assure that our services will be considered cost-effective by third-party payers, that reimbursement will be available or that changes in payer reimbursement policies will not have a material adverse effect on our ability to sell our goods and services on a profitable basis, if at all.


RISKS RELATED TO OUR COMPLIANCE WITH FEDERAL AND STATE REGULATORY AGENCIES, AS WELL AS ACCREDITATION STANDARDS


WE ARE SUBJECT TO REVIEWS, COMPLIANCE AUDITS AND INVESTIGATIONS THAT COULD RESULT IN ADVERSE FINDINGS THAT NEGATIVELY AFFECT OUR NET SERVICE REVENUES AND PROFITABILITY.


As a result of our participation in VA programs and other state and local governmental programs, we are subject to various reviews, audits and investigations by governmental authorities and other third parties to verify our compliance with these programs and agreements as well as our compliance with applicable laws, regulations and conditions of participation. If we fail to meet any of the conditions of participation or coverage, we may receive a notice of deficiency from the applicable surveyor or authority. Failure to institute a plan of action to correct the deficiency within the period provided by the surveyor or authority could result in civil or criminal penalties, the imposition of fines or other sanctions, damage to our reputation, cancellation of our agreements, suspension or revocation of our licenses or disqualification from federal and state reimbursement programs. These actions may adversely affect our ability to provide certain services, to receive payments from other payers and to continue to operate. Additionally, actions taken against one of our locations may subject our other locations to adverse consequences. We may also fail to discover all instances of noncompliance by our acquisition targets, which could subject us to adverse remedies once those acquisitions are complete. Any termination of one or more of our locations from the VA program or another state or local program for failure to satisfy such program’s conditions of participation could adversely affect our service revenues and our profitability.


Federal, state and local government payers may disallow our requests for reimbursement based on determinations that certain costs are not reimbursable because proper documentation was not provided or because certain services were not covered or deemed necessary. In addition, other third-party payers may reserve rights to conduct audits and make reimbursement adjustments in connection with or exclusive of audit activities. Significant adjustments as a result of these audits could adversely affect our revenues and profitability or may require a retroactive adjustment to previously recognized income.


Although we have invested substantial time and effort in implementing policies and procedures to comply with laws and regulations, we could be subject to liabilities arising from violations. A violation of the laws governing our operations, or changes in the interpretation of those laws, could result in the imposition of fines, civil or criminal penalties, the termination of our rights to participate in federal and state-sponsored programs or the suspension or revocation of our licenses to operate. If we become subject to material fines or if other sanctions or other corrective actions are imposed upon us, we may suffer a substantial reduction in revenues.


RISKS RELATED TO OPERATIONAL AND FINANCIAL PERFORMANCE


THE LOSS OF FINANCING FOR VEHICLE PURCHASES AND/OR THE LOSS OF MAJOR CREDIT LINES WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.


The Company has a financing plan known as a floor plan for its modified mobility vehicles inventory and has a line of credit used for financing its accounts receivable.  Management believes that it can meet all financial covenants under these arrangements and that such agreements will be renewed when they come due.  However there can be no assurance of this and the loss of this financing would have a material adverse effect on the Company.  Subsequent to December 31, 2013, the Company was notified of a default under this floor plan agreement for lack of timeliness of financial statements. This default has been remedied by a “Notice of Covenant Waiver” of such default from the lender. With the discretionary nature of this loan agreement, the Lender or the Company can terminate this agreement with a thirty (30) day written notice at any time. Management believes that there are other viable financing options available to the Company if the Lender was to terminate the agreement.


THE MARKET IN WHICH THE COMPANY OPERATES IS HIGHLY COMPETITIVE, AND IF THE COMPANY IS UNABLE TO COMPETE SUCCESSFULLY, ITS BUSINESS WILL BE MATERIALLY ADVERSELY AFFECTED.


The modified mobility vehicles market is relatively competitive and increased competition could cause downward price pressure.  The barrier to entry consists primarily of the expertise required to reliably modify vehicles with needed hand and voice controls and a large amount of initial capital outlay.  In addition, although we are granted specific exclusive territories by some of our major suppliers, there is no guarantee we will continue these existing relationships and agreements or that such agreements will be available in the future or in territories in which we wish to expand.


9



THE PROVISION OF MODIFICATIONS TO MODIFIED MOBILITY VEHICLES ENTAILS AN INHERENT RISK OF PRODUCT LIABILITY, AND THE COMPANY’S INSURANCE MAY NOT BE SUFFICIENT TO EFFECTIVELY PROTECT THE COMPANY FROM ALL SUCH CLAIMS.


The provision of modifications to wheelchair vehicles entails an inherent risk of liability. Since the Company installs and modifies wheelchair vans to add various hand and voice controls, there is a risk of a failure of such modifications which could result in an accident. Product defect claims may involve large claims and significant defense costs. It is expected that the Company periodically will be subject to such suits as a result of the nature of its business. The Company currently maintains product and professional liability insurance intended to cover such claims in amounts which management believes are in keeping with industry standards. We can provide no assurance that the Company will be able to obtain liability insurance coverage in the future on acceptable terms, if at all. There can be no assurance that claims in excess of the Company’s insurance coverage will not arise. A successful claim against the Company in excess of the Company’s insurance coverage could have a material adverse effect upon the operations, financial condition or prospects of the Company. Claims against the Company, regardless of their merit or eventual outcome, may also have a material adverse effect upon the Company’s ability to attract customers or to expand its business.


A TIGHTENING OF AVAILABILITY OF AUTO LOANS TO CONSUMERS COULD IMPACT THE SALES OF MODIFIED MOBILITY VEHICLES.


Most purchasers of our modified mobility vehicles are responsible for a significant portion of the purchase price of the vehicle.  Recent financial and economic conditions have resulted in a difficulty for consumers in general to obtain normal consumer credit.  A change in economic conditions may result in the inability for a greater number of consumers to obtain such financing and could have an adverse effect on our profitability.


THE INABILITY TO MAINTAIN RELATIONSHIPS WITH MAJOR VENDORS COULD RESULT IN A SIGNIFICANT DISRUPTION IN OUR BUSINESS, AND MAY RESULT IN OUR INABILITY TO SERVE OUR CUSTOMERS AND CONSEQUENTLY COULD HAVE A MATERIAL AFFECT ON OUR RESULTS OF OPERATIONS.


Our Modified Mobility Vehicles segment currently has certain critical vendor relationships. Although we have been able to maintain such relationships without material interruption in the past, there can be no assurance that such relationships will continue in the future. Should any of these vendors elect not to provide needed products or services, there would likely be a significant disruption to our business, a material adverse effect on our financial condition, revenues, profit margins, profitability, operating cash flows and results of operations and an inability to serve our customers until such time as a replacement vendor could be identified. This would likely occur if there is a deterioration or perceived deterioration of our financial position, including the evaluation of our standing with respect to our subordinated debt. Moreover, there can be no assurance that the pricing structure that we currently enjoy by our suppliers of products or services would be matched by a replacement vendor. Additionally, any future issues with respect to liquidity, debt covenant compliance or declines in our results of operations could adversely impact our ability to leverage our purchasing activities with new or existing vendors.


WE MAY UNDERTAKE ACQUISITIONS THAT COULD SUBJECT US TO UNANTICIPATED LIABILITIES AND THAT COULD FAIL TO ACHIEVE EXPECTED BENEFITS.


Our strategy is to increase our market share through internal growth and strategic acquisitions. Consideration for acquisitions has generally consisted of cash, Company stock, unsecured non-interest bearing obligations and the assumption of certain liabilities.


The implementation of an acquisition strategy involves certain risks, including inaccurate assessment of disclosed liabilities, the existence of undisclosed liabilities, regulatory compliance issues associated with the acquired business, entry into markets in which we may have limited or no experience, diversion of management’s attention and human resources from our underlying business, difficulties in integrating the operations of an acquired business or in realizing anticipated efficiencies and cost savings, failure to retain key management or operating personnel of the acquired business, and an increase in indebtedness resulting in a limitation in the ability to access additional capital on favorable terms. The successful integration of an acquired business may be dependent on the size of the acquired business, condition of the customer billing records, the complexity of system conversions and execution of the integration plan by local management. If we do not successfully integrate the acquired business, the acquisition could fail to achieve its expected revenue contribution or could result in delays in the billing and collection of claims for services rendered to customers.  All such factors could have a material adverse effect on our financial position and operating results.


IF WE FAIL TO ENHANCE AND MAINTAIN EFFECTIVE AND EFFICIENT INFORMATION SYSTEMS, OUR OPERATIONS MAY BE DISRUPTED AND OUR ANTICIPATED OPERATING EFFICIENCY MAY NOT BE REALIZED.


10



Our operations are dependent on the enhancement and uninterrupted performance of our information systems. Failure to enhance and maintain reliable information systems or disruptions in our information systems could cause disruptions in our business operations, including billing and collections, loss of existing customers and difficulty in attracting new customers, customer and payer disputes, regulatory problems, increases in administrative expenses or other adverse consequences, any or all of which could disrupt our operations and prevent us from achieving operating efficiency.  We rely on information technology systems to process, transmit and store electronic information, including electronically maintained and transmitted customer health and billing information.   Hence, telecommunications and information technology system disruptions and failures at any of our facilities could significantly disrupt our operations.  Like most companies, our information technology systems may be vulnerable to a variety of failures or disruptions due to events beyond our control, including, but not limited to natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers and other security issues.  We have technology security initiatives and disaster recovery plans in place to mitigate risk to these vulnerabilities, but these measures may not be adequate or sufficiently implemented to ensure that our operations are not disrupted.


INCREASES IN OUR COSTS COULD ERODE OUR PROFIT MARGINS AND SUBSTANTIALLY REDUCE OUR NET INCOME AND CASH FLOWS.


Cost containment in mobility related industries, impacted in part by federal and state government budgetary shortfalls, is likely to result in constant or decreasing reimbursement amounts for our equipment and services. As a result, we must control our operating cost levels, particularly labor and related costs. We compete with other mobility providers to attract and retain qualified or skilled personnel. We also compete with various industries for lower-wage administrative and service employees. Since some of our revenues are established by fee schedules mandated by VA, third-party and private payers, we may not be able to offset the effects of general inflation in labor and related cost components, if any, through increases in prices for our equipment and services. Consequently, such cost increases could erode our profit margins and reduce our net income.


WE ARE HIGHLY DEPENDENT ON OUR KEY PERSONNEL.


Our performance is substantially dependent on the performance and continued efforts of our senior management team. The loss of the services of any of our executive officers or other key employees could result in a decline in our business, results of operations and financial condition. Our future success is dependent on the ability of our managers and sales personnel to manage and promote our business, operations and growth. Any inability to manage our operations effectively could have a material adverse effect on our financial condition, revenues, profit margins, profitability, operating cash flows and results of operations.


IF WE ARE NOT ABLE TO HIRE QUALIFIED MANAGEMENT AND OTHER PERSONNEL, OR IF COSTS OF COMPENSATION OR EMPLOYEE BENEFITS INCREASE SUBSTANTIALLY, THEN OUR ABILITY TO DELIVER EQUIPMENT AND SERVICES EFFECTIVELY COULD SUFFER AND OUR PROFITABILITY WOULD LIKELY DECLINE.


The success of our business depends upon our ability to attract and retain highly motivated, well-qualified management and other personnel. Our highest cost is in the payment of salaries to our full time employees. We face significant competition in the recruitment of qualified employees. If we are unable to recruit or retain a sufficient number of qualified employees, or if the costs of compensation or employee benefits increase substantially, our ability to deliver services effectively could suffer and our profitability would likely decline. Furthermore, in the event that our business operations or financial condition deteriorate, we may not be able to maintain or recruit critical employees.


IF WE FAIL TO ESTABLISH AND MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROL, WE MAY NOT BE ABLE TO REPORT OUR FINANCIAL RESULTS ACCURATELY OR TO PREVENT FRAUD. ANY INABILITY TO REPORT AND FILE OUR FINANCIAL RESULTS ACCURATELY AND TIMELY COULD HARM OUR REPUTATION AND ADVERSELY IMPACT THE TRADING PRICE OF OUR COMMON STOCK.


Effective internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely affect our financial condition, results of operation and access to capital.   Management has determined that our internal audit function is significantly deficient due to insufficient qualified resources to perform internal audit functions.  During our assessment of the effectiveness of internal control over financial reporting as of December 31, 2013, management has identified material weaknesses related to, among other things, (i) our internal audit functions, and (ii) a lack of segregation of duties within accounting functions. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls


11



may become inadequate because of changes in conditions, or that the degree of compliance with any policies and procedures may deteriorate.  Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, we will implement procedures to assure that the initiation of transactions, the custody of assets and the recording of transactions will be performed by separate individuals. We cannot be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. Any failure to implement required new or improved controls or difficulties encountered in their implementation could harm our operating results or cause us to fail to meet our reporting obligations. Ineffective internal control over financial reporting could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.


PUBLIC COMPANY COMPLIANCE MAY MAKE IT MORE DIFFICULT TO ATTRACT AND RETAIN OFFICERS AND DIRECTORS.


The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and rules implemented by the Securities and Exchange Commission have required changes in corporate governance practices of public companies. As a public company, we expect these rules and regulations to increase our compliance costs in 2013 and beyond and to make certain activities more time consuming and costly. As a public company, these rules and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers, and to maintain insurance at reasonable rates, if at all.


COMPLIANCE WITH THE REPORTING REQUIREMENTS OF FEDERAL SECURITIES LAWS CAN BE EXPENSIVE AND MAY DIVERT RESOURCES FROM OTHER PROJECTS, THUS IMPAIRING OUR ABILITY TO GROW.


We are subject to the information and reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and other federal securities laws, including compliance with the Sarbanes-Oxley Act. The costs of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC, and furnishing audited reports to stockholders will cause our expenses to be higher than they would have been if we were a privately owned company.


It may be time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal control and other finance personnel in order to develop and implement appropriate internal controls and reporting procedures. If we are unable to comply with the internal controls requirements of the Sarbanes-Oxley Act, then we may not be able to obtain the independent accountant certifications required by such act, which may preclude us from keeping our filings with the Securities and Exchange Commission current and interfere with the ability of investors to trade our securities and for our shares to continue to be quoted on the OTC Bulletin Board or to list on any national securities exchange.


RISKS RELATING TO OUR COMMON STOCK


OUR STOCK PRICE MAY BE VOLATILE.


The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:


·

changes in our industry;

 

 

·

competitive pricing pressures;

 

 

·

our ability to obtain working capital financing;

 

 

·

additions or departures of key personnel;

 

 

·

our limited “public float” being in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for our common stock;

 

 

·

our ability to execute our business plan;

 

 

·

sales of our common stock;


12



·

operating results that fall below expectations;

 

 

·

loss of any strategic relationship;

 

 

·

regulatory developments;

 

 

·

economic and other external factors;

 

 

·

period-to-period fluctuations in our financial results; and

 

 

·

the inability to develop or acquire new or needed technology.


In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.


WE HAVE NOT PAID CASH DIVIDENDS IN THE PAST AND DO NOT EXPECT TO PAY DIVIDENDS IN THE FUTURE. ANY RETURN ON INVESTMENT MAY BE LIMITED TO THE VALUE OF OUR COMMON STOCK.


We have never paid cash dividends on our common stock and do not anticipate doing so in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a positive return on investment will only occur if our stock price appreciates.


OUR COMMON STOCK IS DEEMED A “PENNY STOCK,” WHICH WOULD MAKE IT MORE DIFFICULT FOR OUR INVESTORS TO SELL THEIR SHARES.


Our common stock is subject to the “penny stock” rules adopted under Section 15(g) of the Exchange Act. The penny stock rules generally apply to companies whose common stock is not listed on the NASDAQ Stock Market or other national securities exchange and trades at less than $4.00 per share, other than companies that have had average revenue of at least $6,000,000 for the last three years or that have tangible net worth of at least $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If we remain subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities. If our securities are subject to the penny stock rules, investors will find it more difficult to dispose of our securities.


OFFERS OR AVAILABILITY FOR SALE OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK MAY CAUSE THE PRICE OF OUR COMMON STOCK TO DECLINE.


If our stockholders sell substantial amounts of our common stock in the public market or upon the expiration of any statutory holding period under Rule 144, or upon expiration of lock-up periods applicable to outstanding shares, or issued upon the exercise of outstanding options or warrants, it may create a circumstance commonly referred to as an “overhang” and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.


ITEM 1B.

UNRESOLVED STAFF COMMENTS

 

Not applicable to a smaller reporting company.


ITEM 2.

PROPERTIES


We currently lease 19 properties as follows:


13



Location

Usage

Ocala, Florida

Certified Medical home health care store

Addison, Texas

Hasco corporate office

Londonderry, New Hampshire

Ride Away store

North Attleboro, Massachusetts

Ride Away store

Norfolk, Virginia

Ride Away store

East Hartford, Connecticut

Ride Away store

Gray, Maine

Ride Away store

Norwood, Massachusetts

Ride Away store

Essex, Vermont

Ride Away store

Norristown, Pennsylvania

Ride Away store

Beltsville, Maryland

Ride Away store

Tampa, Florida

Ride Away store

Richmond, Virginia

Ride Away store

Clermont, Florida

Mobility Freedom store & offices

Orlando, Florida

Mobility Freedom store

Bunnell, Florida

Mobility Freedom store

Largo, Florida

Mobility Freedom store

Fort Lauderdale, Florida

Auto Mobility

Lake Worth, Florida

Auto Mobility


ITEM 3.

LEGAL PROCEEDINGS


From time to time the Company is made to answer to various legal disputes arising out of the ordinary course of doing business.  It is the opinion of management, in consultation with our attorneys, that to the extent such parties may have a reasonable possibility of prevailing against us, such potential awards or judgments would be of immaterial financial relevance when considering the financial statements as a whole.


ITEM 4.

MINE SAFETY DISCLOSURES


Not Applicable.


PART II


ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES


Market Price of and Dividends on Common Equity and Related Stockholder Matters


Our common stock is quoted on the OTC Bulletin Board under the symbol “HASC.QB”.


The following sets forth, for the fiscal quarters indicated, the high and low closing prices per share of our common stock as reported on the OTC Bulletin Board. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may or may not represent actual transactions.


Year Ended December 31, 2013

High

Low

First Quarter

$0.02

$0.01

Second Quarter

0.02

0.01

Third Quarter

0.05

0.01

Fourth Quarter

0.04

0.02

Year Ended December 31, 2012

 

 

First Quarter

$0.02

$0.01

Second Quarter

0.01

0.01

Third Quarter

0.02

0.01

Fourth Quarter

0.02

0.01



14



Holders


As of June 20, 2014, we had 156 stockholders of record of our common stock. The recording of stockholders of record is maintained by our transfer agent, VStock Transfer, Inc.


Dividend Policy


We have never paid cash dividends on our common stock. Payment of dividends is within the sole discretion of our Board of Directors and will depend upon, among other factors, our earnings, our capital requirements and our operating and financial condition. Under Florida law, we may declare and pay dividends on our capital stock either out of our surplus, as defined in the relevant Florida statutes, or if there is no such surplus, out of our net profits for the fiscal year or the preceding fiscal year in which the dividend is declared. However if the capital of our company when computed in accordance with the relevant Florida statutes has been diminished by a depreciation in the value of our property, or by losses or otherwise, to an amount less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets, we are prohibited from declaring and paying dividends out of such net profits upon any shares of our capital stock until the deficiency in the amount of capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets shall have been repaired.


Recent Sales of Unregistered Securities


During 2013, 1,047,560 shares of common stock valued at $29,500 were issued to an officer as employee compensation, 2,845,375 shares of common stock valued at $53,350 were issued to key employees as employee compensation and 229,370 shares of common stock valued at $7,316 were issued to directors as board compensation.


During 2013, we sold 158,820 shares of common stock for proceeds of $2,000.


On November 26, 2013, the Company issued 1,000,000 shares valued at $21,200 in lieu of note payments.


All of the foregoing issuances and sales were made to accredited investors and/or employees and accordingly these issuances were exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act.


ITEM 6.

SELECTED FINANCIAL DATA


Not applicable to smaller reporting companies.


ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.


The following discussion of our financial condition and results of operation for the fiscal years ended December 31, 2013 and 2012 should be read in conjunction with the financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Item 1A. Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and Business sections in this Form 10-K. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.


Overview


Hasco Medical, Inc., formerly BBC Graphics of Palm Beach Inc. was incorporated in May 1999 under the laws of the State of Florida. Through a series of transactions, BBC Graphics of Palm Beach Inc. (at the time an inactive corporation) became Hasco Medical, Inc. (Hasco).  Concurrently, Hasco Medical, Inc. acquired Southern Medical & Mobility.  In May, 2011, Hasco acquired Mobility Freedom, Inc. and Wheelchair Vans of America.  In November, 2011, Hasco acquired Certified Medical Systems II (Certified Medical).  A more detailed description of these transactions is contained in our 10-K filing with the Securities and Exchange Commission for the period ended December 31, 2012. On March 1, 2012, Hasco Medical, Inc. completed the acquisition of Ride-Away Handicap Equipment Corp., a closely-held New Hampshire corporation (Ride-Away).  On September 4, 2013, Hasco Medical, Inc. completed the acquisition of Auto Mobility Sales, Inc. (Auto Mobility).


15



Our operations are conducted within one business unit:


·

Modified Mobility Vehicles – our primary business conducts sales of handicap accessible vans, parts and services and conducts rental operations of related equipment.  This segment consists of Ride-Away which has eleven locations from Maine to Florida, Mobility Freedom including its rental operations conducted under the trade name “Wheelchair Vans of America” and Certified Medical Auto, now inactive, all three of which are located in Florida, and Auto Mobility Sales, Inc., which has two (2) locations in Florida.


Critical Accounting Policies


The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with Generally Accepted Accounting Principles for companies in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates if different assumptions were made or different conditions existed.


A summary of significant accounting policies is included in Note 1 to the audited consolidated financial statements included for the year ended December 31, 2013 and notes thereto contained in this report as filed with the Securities and Exchange Commission.  Management believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about the Company’s operating results and financial condition.


Our consolidated financial statements include a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements. Management believes the following critical accounting policies affect the significant judgments and estimates used in the preparation of the consolidated financial statements:


Use of Estimates - Management’s Discussion and Analysis or Plan of Operations is based upon our audited consolidated financial statements  that have been prepared in accordance with accounting principles generally accepted in the United States of America. Management bases its use of estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from these estimates under different assumptions or conditions.


Revenue Recognition - The Company recognizes revenue in accordance with FASB ASC Topic 605, “Revenue Recognition”, and with the guidelines of the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition”. Under SAB 104, four conditions must be met before revenue can be recognized: (i) there is persuasive evidence that an arrangement exists, (ii) delivery has occurred or service has been rendered, (iii) the price is fixed or determinable, and (iv) collection is reasonably assured.  Revenues consist of the sales of new and used vehicles, sales of parts and automotive services, commissions from finance and insurance products, vehicle rentals, sales of durable medical equipment and home health care services.  We recognize revenue in the period in which products are sold or the services are rendered and only if there is reasonable expectation of collection.  For vehicles, a sale is recorded only when title has transferred and the vehicle has been delivered.  Rebates received from manufacturers are recorded as a reduction of the costs of each vehicle and recognized upon the sale of the vehicle or when earned under a specific manufacturer program.


Rental fees for vehicles and medical equipment and fees for home health care services are recognized over the course of the rental or service term, with unbilled amounts accrued at period end in cases where the rental term extends beyond the end of a period.  


In certain instances, customers place deposits on vehicles or special order parts for service and conversions.  Deposits are not recognized as revenue until the related vehicle or part is sold.


The Company arranges financing for customers through various institutions and receive financing fees based on the difference between the loan rates charged to customers and wholesale financing rates set by the financing institution.  We also receive fees from the sale of extended service contracts, warranties and vehicle security systems.


16



Stock Based Compensation - FASB ASC Topic 718: Compensation – Stock Compensation (“ASC 718”) requires companies to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans.  The Company elected to value employee stock options using the Black-Scholes option valuation method that uses assumptions that relate to the expected volatility of the Company’s common stock, the expected dividend yield of our stock, the expected life of the options and the risk free interest rate. Such compensation amounts, if any, are amortized over the respective vesting periods or period of service of the option grant.  


Certain employees receive a portion of their compensation as Company common stock, and other employees receive the Company’s stock as part of their bonus plans.  This compensation is valued at the trading value of the shares at the date of issuance.


Accounts Receivable -.  Management performs periodic analyses to evaluate accounts receivable balances to ensure that recorded amounts reflect estimated net realizable value. Specifically, management considers historical realization data, accounts receivable aging trends, and other operating trends. Also considered are relevant business conditions such as governmental and third party payer claims processing procedures and system changes. Accounts receivable are reduced by an allowance for doubtful accounts which provides for those accounts from which payment is not expected to be received, although services were provided and revenue was earned. Upon determination that an account is uncollectible, it is written-off and charged to the allowance.


Inventory - Vehicle inventory is valued at an actual cost basis and is adjusted to reflect the lower of cost or market.  Parts and inventoried equipment is valued at cost basis and includes primarily finished goods.  Work in process vehicle inventory is valued at a cost basis related to actual vehicle costs increased by a cost-based accumulation of work according to the judgment of management.  In addition to this actual value determination according to the judgment of management, the Company makes a reserve to the value of our inventory to account for the potential decline in value of aging model years of our new and used vehicle inventory, the seasonal fluctuation of our used vehicle inventory, and to account for other undeterminable factors which may affect the on-going valuation of our inventory.


Long-Lived Assets - The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company did not record any impairment charges for the years ended December 31, 2013 and December 31, 2012


Goodwill and Other Intangible Assets - In accordance with ASC 350-30-65 “Goodwill and Other Intangible Assets”, the Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an impairment review include the following:


 

1.

Significant underperformance relative to projected future operating results;

 

 

 

 

2.

Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and

 

 

 

 

3.

Significant negative industry or economic trends.


When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected discounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows.


Reimbursement by Third Party Payers


We derive approximately 26% of our Modified Mobility Vehicles Segment revenue from the United States Department of Veterans Affairs (the “VA”) and other Veterans programs.


The Modified Mobility Vehicle industry is subject to extensive regulation by a number of governmental entities at the federal, state and local levels. The industry also is subject to frequent legislative and regulatory changes.  If we fail to comply with the laws and regulations applicable to our business, we could suffer civil and/or criminal penalties and we could be excluded from participating in VA and other federal and state funding programs. It is the judgment of management that we are in compliance with all such laws and regulations to the extent they may materially affect our financial condition.


17



Results of Operations


The results of operations presented on a historical comparative basis require consideration in the nature of the change in business activity and the acquisition of business entities from 2013 to 2012.  Any such comparison requires a careful examination of the change in the nature of the Company’s business activity in conjunction with numerical comparisons of year-to-year results. The following table provides an overview of certain key factors of our results of operations for the year ended December 31, 2013 as compared to the year ended December 31, 2012:


 

 

Year ended December 31,

 

 

 

2013

 

2012

 

Net revenues

 

$

72,913,615

 

$

62,994,217

 

Cost of sales

 

 

54,715,897

 

 

48,614,216

 

Operating expenses:

 

 

 

 

 

 

 

Selling and marketing

 

 

4,298,770

 

 

3,703,329

 

General and administrative

 

 

11,177,310

 

 

8,420,550

 

Amortization and depreciation

 

 

1,053,808

 

 

1,285,202

 

Total operating expenses

 

 

16,529,888

 

 

13,409,081

 

Income from operations

 

 

1,667,830

 

 

970,920

 

Total other income (expense)

 

 

(581,660

)

 

(455,272

)

Provision for income taxes

 

 

62,578

 

 

6,673

 

Income from continued operations

 

 

1,023,592

 

 

508,975

 

(Loss) from discontinued operations

 

 

(222,038

)

 

(426,675

)

Net income

 

$

801,554

 

$

82,300

 


Other Key Indicators:


 

Year ended December 31,

 

2013

 

2012

Cost of sales as a percentage of revenues

75.0%

 

77.2%

Gross profit margin

25.0%

 

22.8%

General and administrative expenses as a percentage of revenues

15.3%

 

13.4%

Total operating expenses as a percentage of revenues

22.7%

 

19.7%


The following table provides comparative data regarding the source of our net revenues in each of these periods:


 

Year Ended December 31,

 

 

2013

 

2012

 

Product Sales

$

58,800,359

 

$

51,506,867

 

Rental Revenue

 

1,276,154

 

 

600,520

 

Service and other

 

12,837,102

 

 

10,886,830

 

Total Net Revenues

$

72,913,615

 

$

62,994,217

 


Year ended December 31, 2013 and 2012


Net Revenues

 

For the year ended December 31, 2013, we reported revenues of $72,913,615 as compared to revenues of $62,994,217 for the year ended December 31, 2012, an increase of $9,919,398 or approximately 15.7%.  The increase is due to the increase in private pay business for van sales and the acquisition of Auto Mobility Sales.


Product sales for the year ended December 31, 2013 and 2012 amounted to $58,800,359 and $51,506,867 respectively, an increase of $7,293,492 or 14.2%.  Rental revenue for the year ended December 31, 2013  and December 31, 2012 were $1,276,154 and $600,520 respectively,  an increase of $675,634 or 112.5%.  Service and other revenue were $12,837,102 for the year ended December 31, 2013 compared to $10,886,830 for the year ended December 31, 2012.  This represents an increase of $1,950,272 or 17.9%.


These increases were due to the increase in private pay business for van sales and the acquisition of Auto Mobility Sales. We do not anticipate any significant price increases in 2014.  Product sales comprise approximately 80.6% and 81.2% of the Company’s sales for the year ended December 31, 2013 and December 31, 2012 respectively.


18



Cost of Sales


Our cost of sales consists of products purchased for resale and service parts and labor.  For the year ended December 31, 2013, cost of sales was $54,715,897, or approximately 75.0% of revenues, compared to $48,614,216, or approximately 77.2% of revenues, for the year ended December 31, 2012. The overall increase of cost of sales for our Modified Mobility Vehicle operations is due to the increase in revenue.


We have a single vendor that represents 58% of our purchases.  Our relationship with this vendor is excellent and we do not anticipate any change in the status of that relationship.  Should there be any such change; management believes that substantially similar products are available from other competitive vendors at terms that will not have a substantial effect on our financial condition.


Gross Profit


Overall gross profit percentage increased to 25.0% for the year ended December 31, 2013 from 22.8% for the year ended December 31, 2012, due to the greater buying power and utilization of capacity in service.


Total Operating Expense


Total operating expenses increased as a percentage of revenues to 22.7% for the year ended December 31, 2013 from 19.7% for the year ended December 31, 2012.  These changes include:


Selling and Marketing Expense. For the year ended December 31, 2013, selling and marketing costs were $4,298,770 and $3,703,329 for the year ended December 31, 2012. The increase was due to the business acquisitions made in 2012 and marketing, advertising and print advertising programs initiatives, primarily in the modified mobility vehicles operations.


General and Administrative Expense. For the year ended December 31, 2013, general and administrative expenses were $11,177,310 as compared to $8,420,550 for the year ended December 31, 2012, an increase of $2,756,760. The increase is due to the additional rent and employee compensating associated with the acquisition of Auto Mobility in 2013. For the year ended December 31, 2013 and 2012 general and administrative expenses consisted of the following:


 

Year Ended December 31,

 

2013

 

2012

Rent

$

1,856,607

 

$

1,062,000

Employee compensation

 

6,029,074

 

 

4,655,879

Professional fees

 

316,243

 

 

296,529

Internet/Phone

 

420,179

 

 

237,616

Travel/Entertainment

 

364,993

 

 

320,664

Insurance

 

299,854

 

 

316,781

Other general and administrative

 

1,890,360

 

 

1,531,081

 

$

11,177,310

 

$

8,420,550


For the year ended December 31, 2013, rent expense increased by $794,607 as compared the year ended December 31, 2012.  The increase is due to the larger number of facility leases as a result of the Mobility Freedom and Ride Away acquisitions and the additional locations acquired from the purchase of Auto Mobility Sales.

 

 

For the year ended December 31, 2013, employee compensation, related taxes and stock-based compensation expenses were $6,029,074, an increase of $1,373,195 over the year ended December 31, 2012. The increase relates primarily to the personnel added with the acquisition of Ride-Away and Mobility Freedom and the additional personnel acquired from the purchase of Auto Mobility Sales.

 

 

For the year ended December 31, 2013, professional fees increased to $316,243 as compared to $296,529 for the year ended December 31, 2012; an increase of $19,714.  This increase is due to the addition of the Ride-Away subsidiary and Auto Mobility Sales and their operations and locations.

 

 

For the year ended December 31, 2013, internet/telephone expense increased to $420,179 as compared to $237,616 for the year ended December 31, 2012, an increase of $182,563.  This increase is due to the addition of the Ride-Away and Mobility Freedom, and Auto Mobility subsidiaries and their operations and locations.


19



For the year ended December 31, 2013, travel and entertainment expense increased to $364,993 as compared to $320,664 for the year ended December 31, 2012, an increase of $44,329.  This increase is due to the increased travel necessitated by the addition of the Ride-Away and Mobility Freedom and Auto Mobility subsidiaries.

 

 

For the year ended December 31, 2013 insurance expense decreased to $299,854 as compared to $316,781 for the year ended December 31, 2012.  This decrease is due to the synergies attained with the addition of the Ride-Away subsidiary Auto Mobility Sales.

 

 

For the year ended December 31, 2013, other general and administrative expense increased to $1,890,360 as compared to $1,531,081 for the year ended December 31, 2012, an increase of $359,279.  This increase is due to the addition of the Ride-Away and Mobility Freedom and Auto Mobility subsidiaries.


Depreciation and Amortization Expense.  For the year ended December 31, 2013, depreciation and amortization expense amounted to $1,,126,104 as compared to $1,285,202 for the year ended December 31, 2012, an decrease of $159,098.  The increase is due to the fixed assets acquired in the purchase of Auto Mobility.


INCOME (LOSS) FROM CONTINUING OPERATIONS


We reported income from continuing operations before taxes of $1,086,170 for the year ended December 31, 2013 as compared to income from continuing operations before taxes of $515,648 for the year ended December 31, 2012.


OTHER INCOME (EXPENSES)


Other income (expense) for the year ended December 31, 2013 amounted to $(581,660) compared to $(455,272) for the year ended December 31, 2012.  Other income and expense consists of acquisition fees and interest expense.


Acquisition fees for the years ended December 31, 2013 and 2012 were $0 and $(26,740), respectively.  These are the various legal and professional fees incurred in the acquisition of Ride-Away which occurred on March 1, 2012.


Discounts and rebates for the years ended December 31, 2013 and 2012 were $487,311 and $588,880, respectively.


Interest expense for the year ended December 31, 2013 amounted to $(1,068,971) as compared to $(911,958) for the year ended December 31, 2012, an increase of $157,013.  This increase is due to the additional debt and capital lease obligations the Company has incurred in the acquisition of the Auto Mobility subsidiary and the increase in volume on the GE floor plan agreement.


NET INCOME


Our net income was $801,554 for the year ended December 31, 2013 compared to net income of $82,300 for the year ended December 31, 2012.


ASSETS AND LIABILITIES


Assets were $27,932,480 as of December 31, 2013.  Assets consisted of cash of $150,313, accounts receivable of $6,182,680, inventory of $11,572,060, prepaid expense of $504,819, short-term deferred tax asset of $413,193, long-term deferred tax asset of $149,204, property and equipment of $2,141,212, intangible assets of $6,214,034, and other non-current assets of $604,965.  Liabilities were $25,322,607 as of December 31, 2013.  Liabilities consisted primarily of accounts payable of $1,849,702, cash overdraft of $175,572, customer deposits and deferred revenue of $388,433, line of credit of $2,303,143, notes payable – floor plan of $12,174,639, current portion of notes payable of $729,693, related party long-term notes payable of $1,947,214, long-term notes payable of $4,075,802, obligation under capital leases of $1,184,486, and other current liabilities of $493,923.


STOCKHOLDERS’ EQUITY


Stockholders’ equity was $2,609,873 as of December 31, 2013.  Stockholder’s equity consisted primarily of shares issued for acquisitions, fundraising, employee compensation, and settlement of services totaling $7,662,190, offset primarily by the deficit accumulated during the development stage of $5,052,317 at December 31, 2013.


20



LIQUIDITY AND CAPITAL RESOURCES


General – Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. The following table provides an overview of certain selected balance sheet comparisons between December 31, 2013 and December 31, 2012:


 

December 31,
2013

 

December 31,
2012

 

$
Change

 

%
Change

 

Working capital surplus

$

341,302

 

$

183,922

 

$

157,380

 

85.6

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash 

 

150,313

 

 

850,391

 

 

(700,078

)

82.5

 

Accounts receivable, net

 

6,182,680

 

 

7,116,008

 

 

(933,328

)

(13.1

)

Inventory

 

11,572,060

 

 

10,489,388

 

 

1,082,672

 

10.3

 

Total current assets

$

18,823,065

 

$

18,633,729

 

$

189,336

 

1.0

 

Property and equipment, net

 

2,141,212

 

 

2,162,729

 

 

(21,517

)

(0.1

)

Intangible assets, net

 

6,214,034

 

 

5,670,013

 

 

544,021

 

9.6

 

Total assets

$

27,932,480

 

$

27,067,319

 

$

1,128,690

 

3.2

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

$

1,849,702

 

$

2,528,005

 

$

(678,303

)

(26.8

)

Cash overdraft

 

175,572

 

 

 

 

175,572

 

100.0

 

Customer deposits and deferred revenue

 

388,433

 

 

909,465

 

 

(521,032

)

(57.3

)

Line of credit

 

2,303,143

 

 

6,081,368

 

 

(3,778,225

)

(62.1

)

Note Payable – Floor Plan

 

12,174,639

 

 

7,421,638

 

 

4,753,001

 

64.0

 

Current portion of capital leases

 

366,658

 

 

510,555

 

 

(143,897

)

(28.2

)

Notes payable-current

 

376,685

 

 

114,265

 

 

262,420

 

229.6

 

Notes payable, related party-current

 

353,008

 

 

506,787

 

 

(153,779

)

(30.3

)

Total current liabilities

$

18,481,763

 

$

18,449,807

 

$

31,956

 

.2

 

Capital lease obligations

 

817,828

 

 

531,944

 

 

285,884

 

53.7

 

Notes payable-long term

 

4,075,802

 

 

1,833,746

 

 

2,242,056

 

122.3

 

Notes payable, related party-long term

 

1,947,214

 

 

4,556,861

 

 

(2,609,647

)

(57.3

)

Total liabilities

$

25,322,607

 

$

25,372,358

 

$

(49,751

)

.2

 

Accumulated deficit

 

(5,052,317

)

 

(5,853,871

)

 

801,554

 

13.7

 

Stockholders’ equity

$

2,609,873

 

$

1,694,961

 

$

914,912

 

53.9

 


Overall, we had a decrease in cash flows of $700,078 in the fiscal year ending December 31, 2013 resulting from cash provided by operating activities of $714,950, offset partially by cash used in investing activities of $669,369, and cash used in financing activities of $745,659.


The following is a summary of our cash flows provided by (used in) operating, investing, and financing activities during the periods indicated:


 

Fiscal Year Ended December 31,

 

 

2013

 

2012

 

Cash at beginning of period

$

850,391

 

$

212,460

 

Net cash provided by operating activities

 

714,950

 

 

1,500,098

 

Net cash used in investing activities

 

(669,369

)

 

(770,002

)

Net cash used in financing activities

 

(745,659

)

 

(92,165

)

Cash at end of period

$

150,313

 

$

850,391

 


The increase in net cash provided by operating activities of $714,950 for the year ended December 31, 2013 was primarily due to net income of $801,554 and non-cash items such as depreciation and amortization expense of $1,126,104, stock-based compensation of $90,183, and the gain on disposal of property and equipment of $63,195, offset partially by the changes in operating assets and liabilities of $1,239,696.  The changes in operating assets and liabilities were primarily due to increases in accounts receivable of $884,871, bad debt expense of $379,490 , and other current liabilities of $116,199 offset partially by decreases in accounts payable of $749,625 inventory of $503,722, prepaid expenses of $279,363, other assets of $4,117, deferred tax assets of $562,397, and customer deposits and deferred revenue of $521,032.


21



The increase in net cash provided by operating activities of $1,500,098 for the year ended December 31, 2012 was primarily due to net income of $82,300 and non-cash items such as depreciation and amortization expense of $1,285,202, impairment of intangible assets of $105,454, stock-based compensation of $114,227, issuance of stock in settlement of services of $93,132, and changes in operating assets and liabilities of $16,641; offset partially by bad debt expense of $72,835, and the gain on disposal of property and equipment of $124,023.  The changes in operating assets and liabilities were primarily due to increases in accounts receivable of $1,932,642, other assets of $341,773, and other current liabilities of $196,944, offset partially by decreases in inventory of $3,702,675, prepaid expenses of $126,213, accounts payable and accrued expenses of $1,617,403, and customer deposits and deferred revenue of $117,373.


Net cash used in investing activities for the year ended December 31, 2013 was $669,369. The change is due to the acquisition of Auto Mobility of $468,978, and purchases of property and equipment of $202,291, offset primarily by the proceeds from the sale of property and equipment of $1,900.


Net cash used in financing activities for the year ended December 31, 2013 was $745,634. This consisted of net repayments on our lines of credit of $3,778,225, net draws and repayments on our notes payable of $359,389, repayments of related party notes payable of $229,166, and principal payments under capital lease obligations of $892,723, and offset partially by net draws on our floor plan of $4,336,272, a cash overdraft of $175,572, and proceeds from sale of common stock of $2,000.  Net cash used in financing activities for the year ended December 31, 2012 was $92,165. This consisted of net draws and repayments on our floor plan of $437,762, net draws and repayments on our lines of credit of $87,001, net draws and repayments on our notes payable of $181,173, proceeds from sale of common stock of $39,890, and offset partially by repayments of related party notes payable of $164,775, and principal payments under capital lease obligations of $673,216.


At December 31, 2013 we had a working capital surplus (current assets in excess of current liabilities) of $341,302 and accumulated deficit of $(5,052,317).


Financing – We believe our current working capital position, together with our expected future cash flows from operations will be adequate to fund our operations in the ordinary course of business, anticipated capital expenditures, debt and floor plan payment requirements, and other contractual obligations for at least the next twelve months.  However, this belief is based upon many assumptions and is subject to numerous risks (see “Risk Factors”), and there can be no assurance that we will not require additional funding in the future.


As we attempt to expand and develop our operations, there exists a potential for net negative cash flows from future operations in amounts not now determinable, and we may be required to obtain additional financing in support of these plans. We have and expect to continue to have substantial capital expenditures and working capital needs.  We expect that the additional financing will (if available) take the form of a private placement of equity, bank borrowings and seller-financed acquisitions, although we may be constrained to obtain additional debt financing in lieu thereof. We are maintaining an on-going effort to consolidate sources of additional funding, without which we  may not be able to continue our expansion efforts.  There are no assurances that we will be able to obtain or continue adequate financing.  If we are able to obtain and continue our required financing, future operating results depend upon a number of factors that are outside such financing considerations.


Vehicle Floorplans and Lines of Credit – Vehicle floorplans and line of credit reflect the amounts borrowed to finance the purchase of specific new and, to a lesser extent, used vehicle inventories with our corresponding manufacturers.  Changes in our vehicle floorplan and credit lines are reported in the financing cash flow section.  Below is a listing of our gross usage and payments on the company’s floorplan and credit lines for the years ended December 31, 2013 and 2012:


For the year-ended December 31, 2013:

Facility

 

Additions

 

Payments

 

Net Usage
Increase (Decrease)

 

Floor plan

 

$

35,335,676

 

$

30,999,404

 

$

4,336,272

 

Line of credit

 

 

10,181,910

 

 

13,960,135

 

 

(3,778,225

)

Total

 

$

45,517,586

 

$

44,959,539

 

$

558,047

 


For the year-ended December 31, 2012:

Facility

 

Additions

 

Payments

 

Net Usage
Increase

 

Floor plan

 

$

23,200,055

 

$

22,762,293

 

$

437,762

 

Line of credit

 

 

772,561

 

 

685,560

 

 

87,001

)

Total

 

$

23,972,616

 

$

23,447,853

 

$

524,763

 


22



Contractual Obligations and Off-Balance Sheet Arrangements


Contractual Obligations


The following tables summarize our contractual obligations as of December 31, 2013.


 

 

Payments Due by Period

 

 

 

Total

 

Less than
1 year

 

1-3 Years

 

4-5 Years

 

5 Years +

 

Contractual Obligations:

 

 

 

 

 

 

 

 

 

 

 

Operating Lease

 

$

12,202,656

 

$

1,889,906

 

$

3,177,859

 

$

2,525,426

 

$

4,609,465

 

Capital lease

 

 

1,184,486

 

 

366,658

 

 

817,828

 

 

 

 

 

Line of credit

 

 

14,477,782

 

 

14,477,782

 

 

 

 

 

 

 

Notes payable

 

 

4,442,486

 

 

376,685

 

 

1,209,381

 

 

889,691

 

 

1,966,729

 

Notes payable – related party

 

 

2,300,221

 

 

353,008

 

 

1,038,900

 

 

$292,548

 

 

615,765

 

Total Contractual Obligations:

 

$

34,607,631

 

$

17,464,039

 

$

6,243,968

 

$

3,707,665

 

$

7,191,959

 


Off-balance Sheet Arrangements


The Company’s management considers all liabilities stated on the consolidated financial statement contained herein to disclose all liabilities and potential liabilities.  We have not entered into any derivative contracts that are indexed to our shares and classified as stockholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk in support to such activity. We do not have any determinable or variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.


Recently Issued Accounting Pronouncements


From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.


ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Not applicable to smaller reporting companies


ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


See our Financial Statements beginning on page F-1 of this annual report.


ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


On March 20, 2014, DKM Certified Public Accountants (the “Former Auditor”) was dismissed as the independent registered public accounting firm for the Company.  The Former Auditor has served as the auditors of the Company’s financial statements for the year ended December 31, 2012.  

 

The reports of the Former Auditor on the Company’s consolidated financial statements for the Company’s year ended December 31, 2012, did not contain any adverse opinion or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principle.

 

During the Company’s two most recent fiscal years and any subsequent interim period preceding the Former Auditor’s dismissal, there were no disagreements with the Former Auditor on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the Former Auditor, would have caused the Former Auditor to make reference to the subject matter of the disagreements as defined in Item 304 of Regulation S-K in connection with any reports it would have issued, and there were no “reportable events” as such term is described in Item 304 of Regulation S-K.


23



On March 25, 2014, we engaged Weaver & Tidwell, L.L.P. (“Weaver”) as our independent public accounting firm. During the years ended December 31, 2012 and 2013 and prior to March 25, 2014 (the date of the new engagement), we did not consult with Weaver regarding (i) the application of accounting principles to a specified transaction, (ii) the type of audit opinion that might be rendered on the Company’s financial statements by Weaver, in either case where written or oral advice provided by Weaver would be an important factor considered by us in reaching a decision as to any accounting, auditing or financial reporting issues, or (iii) any other matter that was the subject of a disagreement between us and our former auditor or was a reportable event (as described in Items 304(a)(1)(iv) or Item 304(a)(1)(v) of Regulation S-K, respectively).


ITEM 9A.

CONTROLS AND PROCEDURES


Disclosure Controls and Procedures


As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of December 31, 2013, the end of the year covered by this report, our management concluded its evaluation of the effectiveness of the design and operation of our disclosure controls and procedures.


Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.


Our management does not expect that our disclosure controls and procedures will prevent all error and all fraud.  As previously discussed, management is aware of the limitations of current system of control and procedures.  A control system, no matter how well designed and operated, can provide only reasonable and not absolute assurance that the control system’s objectives will be met. Further, the design of a control system must reflect that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.


Identification of Material Weaknesses in Controls and Procedures


As a result of the misstatements in the financial statements for the years ended December 31, 2013 and 2012, and in connection with the evaluation of our controls and procedures for the year ended December 31, 2013 we have determined that we have material weaknesses in our controls and procedures, as more fully described below.


A material weakness in internal control over financial reporting is defined in Section 210.1-02(4) of Regulation S-X as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.  A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the Company’s financial reporting.


We have become aware that we:


 

A)

had failed to properly record the purchase price allocations related to the May 13, 2011 acquisition of Mobility Freedom, Inc. and the March 1, 2012 acquisition of Ride-Away Handicap Equipment Corp. and the effects of these corrections on amortization expense and other income accounts.  The error had a significant effect on our previously issued consolidated financial statements for the year ended December 31, 2012, and for each of the quarters for the year ended December 31, 2012.

 

 

 

 

B)

had failed to properly classify direct labor and overhead as cost of goods sold for the year ended December 31, 2012. We previously classified the direct labor and overhead as a component of general and administrative expenses, a line item in the consolidated statements of operations of our previously issued consolidated financial statements.


24



 

C)

had failed to properly depreciate leasehold improvements over the shorter of  either the useful life of the improvement or the lease term.

 

 

 

 

D)

had failed to properly relieve inventory for sold vehicles

 

 

 

 

E)

had failed to record impairment of all of the goodwill associated with the Home Healthcare reporting unit in the quarter ended December 31, 2012.

 

 

 

 

F)

had failed to properly account for certain Home Healthcare revenues using the Net Revenue method.  We previously used the Gross Revenue method.


As a result of identifying these errors, we concluded that accounting adjustments were necessary to correct the previously issued financial statements for the years ended December 31, 2012 and 2011, for each of the quarters for the year ended December 31, 2012, for the quarters ended June 30, 2011, September 30, 2011 and December 31, 2011, and that the reports we filed with the SEC that included the financial statements that reported the erroneous information for those periods should no longer be relied upon.  Accordingly, we restated our financial statements for the year ended December 31, 2012.  In addition, audit adjustments were necessary in the preparation of the 2013 financial statements.


We determined that these failures and related restatements and reclassification demonstrated the following weakness in our internal control over financial reporting:


·

Accounting and Finance Personnel Weakness — As of the years ended December 31, 2013 and 2012, the Company lacked appropriate resources within the accounting function.  The accounting staff is comprised of few people and, as of December 31, 2012, the staff did not have an adequate number of personnel with the expertise and training to meet the Company’s reporting demands.


Remediation Plan for Material Weakness in Internal Control over Financial Reporting


During 2013, we added additional experienced staff to the accounting department.  During 2014 we will continue to assess the needs of our accounting department, hire additional staff as needed and monitor the staff’s continuing education.  We believe that these factors will substantially decrease the possibility of the occurrence of errors in our financial statements.


Management has discussed these material weaknesses with our Audit Committee and Board of Directors and will continue to review progress on these activities on a consistent and ongoing basis at the senior management level in conjunction with our Board of Directors.


We cannot assure you at this time that the actions and remediation efforts we have taken or ultimately will implement will effectively remediate the material weaknesses described above or prevent the incidence of other significant deficiencies or material weaknesses in our internal control over financial reporting in the future.  Our management, including our principal executive officer and principal accounting officer, does not expect that disclosure controls or internal controls over financial reporting will prevent all errors, even as the aforementioned remediation measures are implemented and further improved to address all deficiencies.  The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions.


The implementation of our remediation plan will require substantial expenditures, could take a significant period of time to complete, and could distract our officers and employees from the operation of our business.  


With respect to the fiscal year ending December 31, 2013, under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934. Based upon our evaluation regarding the fiscal year ending December 31, 2013, the Company’s management, including its Chief Executive Officer and Chief Financial Officer, has concluded that its disclosure controls and procedures were not effective.


25



Management’s Report On Internal Control Over Financial Reporting


We are responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:


·

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

 

 

·

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

 

 

·

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.


We assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.


Based on its assessment, we concluded that, as of December 31, 2013, our internal control over financial reporting is not effective based on those criteria.


Auditor Attestation


This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.


Changes in Internal Control over Financial Reporting


There have been no changes in our internal control over financial reporting during the fourth quarter of the year ended December 31, 2013 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


ITEM 9B.

OTHER INFORMATION.


None.


PART III


ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Set forth below is information concerning our executive officers and directors:


26



Name

 

Age

 

Position

Hal Compton, Sr.

 

66

 

Chairman of the Board

Hal Compton, Jr.

 

41

 

Chief Executive Officer and Director

Shane Jorgenson

 

48

 

Chief Financial Officer

Alfredo Olivierre III

 

45

 

Chief Operating Officer

Bill Marginson*

 

67

 

Director

Barry McCook*

 

66

 

Director


* Director member of the audit and compensation committees.


Biographical Information


Harold F. Compton, Sr.  Mr. Compton has been a member of our Board of Directors since January 2009. Mr. Compton has been a retailer for more than 30 years. Mr. Compton joined CompUSA Inc. in 1994 as Executive Vice President-Operations, becoming Executive Vice President and Chief Operating Officer in 1995, President of CompUSA Stores in 1996 and Chief Executive Officer of CompUSA Inc. in 2000, a position he held until his retirement in 2004. Prior to joining CompUSA, Inc., from 1993 until 1994 he served as President and COO of Central Electric Inc., Executive Vice President Operations and Human Resources, and Director of Stores for HomeBase (1989 to 1993), Senior Vice President Operations and Director of Stores for Roses Discount Department Stores (1986 to 1989), and held various management positions including Store Manager, District Manager, Regional Vice President and Zone Vice President for Zayre Corporation from 1965 to 1986. Mr. Compton currently serves as lead director on the Board of Directors of IceWEB, Inc., and is also currently a member of the Board of Directors of Maidenform Brands, Inc. and is a member of its Compensation Committee and Audit Committee of the Board of Directors of that company.


Hal Compton, Jr.  Mr. Compton is the CEO/President of Hasco Medical, Inc. Prior to joining Hasco Medical, Inc., he was in the retail sector for 18 years. He was previously the Vice President of Sales and Operations in charge of stores for CompUSA. In addition to his professional experience, he is currently serving on the National Advisory Council for Arnold Palmer Hospital in Orlando, Florida.  Mr. Compton is a graduate of Pepperdine University.


Shane Jorgenson  Mr. Jorgenson is the Chief Financial Officer of Hasco Medical, Inc. holds a Bachelor of Business Administration in accounting, finance, and statistics from The University of Tulsa in Tulsa, Oklahoma.  Mr. Jorgenson served as Chief Financial Officer and Vice President Strategic Planning for Cistera Networks, Inc. in Plano, Texas.  His experience includes both public and private entities ranging from $3M to $8B in revenues.  Mr. Jorgenson is experienced in multi-unit retail, distribution and service industries as well as real estate and construction.  He previously held the positions of CFO for PrimeSource Food Service Equipment as well as CFO and COO positions for Platinum Packaging, Inc.  He currently holds board positions for Tomlinson Touching Lives Foundation and Ladainian Tomlinson Preparatory Academy.


Alfredo Ollivierre III  Mr. Ollivierre is the Chief Operating Officer of Hasco Medical, Inc. Prior to joining Hasco, he was in the retail sector for over 25 years, working for CompUSA. During his stay with CompUSA, he was in charge of several key projects, including opening locations in the Puerto Rico market. Mr. Ollivierre was previously the Senior Director and Regional Manager of Sales and Operations for CompUSA in charge of the Southeastern United States and Puerto Rico.


Bill Marginson  Mr. Marginson is a Mortgage Loan Consultant with SunTrust Mortgage Inc.  He was also a founding partner of LSM Mortgage, Inc./Sandcastle Title, Inc. of Tampa, Florida. Prior to founding LSM Mortgage, he served in senior management positions in the retail industry for 27 years, including serving as president of Clearwater Mattress Company and serving as CEO of The Wiz electronics retailer. In addition, Mr. Marginson was the co-founder of Yes Appliances and Furniture Co. Inc. and has also held senior positions with The Garr Consulting Group, Montgomery Ward, and Zayre Discount Department Stores. Mr. Marginson was an officer in the U.S. Army, and holds an MBA in Management and Finance, with distinction, from Babson College, and a B.S. in Business Economics from the University of Rhode Island.


Barry McCook  Mr. McCook is currently the owner and President of QS, LLC, a commercial construction and real estate firm.  He was also previously the founder and president of Finders Keepers Inc., an Atlanta, Georgia based retailer featuring deep discount gifts and home accessories.  Prior to founding Finders Keepers, Inc., he served in senior management positions in the retail industry for 27 years, including serving as Senior Vice President of  Store Operations and Real Estate for Softwarehouse /CompUSA, the Director of Store Operations for Tuesday Morning Inc., and as a District Manager for Eckerd Drug Inc.  In addition, Mr. McCook holds a BBA in Finance from the University of Texas – Arlington.



27



Family Relationships


Harold Compton Sr. and Harold Compton Jr. are father and son.


Section 16(a) Beneficial Ownership Reporting Compliance


Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% stockholders are required by the Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports they file. Based solely on our review of the copies of such forms furnished to us during the year ended December 31, 2013, none of our executive officers, directors and persons holding greater than 10% of our issued and outstanding stock have failed to file the required reports in a timely manner.


Code of Ethics Policy


The Company has adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Our code of ethics will be provided to any person without charge by written request to 15928 Midway Rd., Addison, Texas 75001.


Committees of our Board of Directors


Our Board of Directors has created both an Audit Committee and a Compensation Committee. We do not have a Nominating Committee or any committee performing a similar function. The functions that such a committee would undertake are being undertaken by the entire board as a whole. We do not have a policy regarding the consideration of any director candidates which may be recommended by our stockholders, including the minimum qualifications for director candidates, nor has our Board of Directors established a process for identifying and evaluating director nominees. We have not adopted a policy regarding the handling of any potential recommendation of director candidates by our stockholders, including the procedures to be followed. Our Board has not considered or adopted any of these policies as we have never received a recommendation from any stockholder for any candidate to serve on our Board of Directors or any inquiry as to what the procedures may be if a stockholder wished to make such a recommendation.  Since May 2009 the Board has been developing a nominating and approval process and policy to guide the handling of potential recommendations of board candidates. While there have been no nominations of additional directors proposed, in the event such a proposal is made, all members of our Board will participate in the consideration of director nominees.


Audit Committee


The Audit Committee of our Board of Directors was formed to assist the Board of Directors in fulfilling its oversight responsibilities for the integrity of our consolidated financial statements, compliance with legal and regulatory requirements, review of the independent registered public accounting firm’s qualifications and independence, and the performance of our internal audit function and independent auditors. The Audit Committee will also prepare the report that SEC rules require be included in our annual proxy statement. The Audit Committee has adopted a charter which sets forth the parameters of its authority.  The Audit Committee Charter provides that the Audit Committee is empowered to:


·

Appoint, compensate, and oversee the work of the independent registered public accounting firm employed by our company to conduct the annual audit. This firm will report directly to the audit committee;

 

 

·

Resolve any disagreements between management and the auditor regarding financial reporting;

 

 

·

Pre-approve all auditing and permitted non-audit services performed by our external audit firm;

 

 

·

Retain independent counsel, accountants, or others to advise the committee or assist in the conduct of an investigation;

 

 

·

Seek any information it requires from employees - all of whom are directed to cooperate with the committee’s requests - or external parties;

 

 

·

Meet with our officers, external auditors, or outside counsel, as necessary; and


28



·

Delegate authority to subcommittees, including the authority to pre-approve all auditing and permitted non-audit services, provided that such decisions are presented to the full committee at its next scheduled meeting.


Each Audit Committee member is required to:


·

Satisfy the independence requirements of Section 10A(m)(3) of the Securities Exchange Act of 1934, and all rules and regulations promulgated by the SEC as well as the rules imposed by the stock exchange or other marketplace on which our securities may be listed from time to time; and

 

 

·

Meet the definitions of “non-employee director” for purposes of SEC Rule 16b-3 and “outside director” for purposes of Section 162(m) of the Internal Revenue Code.


Each committee member is required to be financially literate and at least one member is to be designated as the “financial expert,” as defined by applicable legislation and regulation. No committee member is permitted to simultaneously serve on the audit committees of more than two other public companies. Our Board of Directors has determined that the designated member of the audit committee is an independent director.  Mr. Marginson is considered an “audit committee financial expert” under the definition under Item 407 of Regulation S-K. As we expand our Board of Directors with additional independent directors, the number of directors serving on the Audit Committee will also increase.


Compensation Committee


The Compensation Committee was appointed by the Board to discharge the Board’s responsibilities relating to:


·

Compensation of our executives;

 

 

·

Equity-based compensation plans, including, without limitation, stock option and restricted stock plans, in which officers or employees may participate; and

 

 

·

Arrangements with executive officers relating to their employment relationships with our Company, including employment agreements, severance agreements, supplemental pension or savings arrangements, change in control agreements and restrictive covenants.


The Compensation Committee has adopted a charter. The Compensation Committee charter provides that the Compensation Committee has overall responsibility for approving and evaluating executive officer compensation plans, policies and programs of our Company, as well as all equity-based compensation plans and policies. In addition, the Compensation Committee oversees, reviews and approves all of our ERISA and other employee benefit plans which we may establish from time to time. The Compensation Committee is also responsible for, when applicable,   producing annual reports on executive compensation for inclusion in our proxy statement and assisting in the preparation of certain information to be included in other periodic reports filed with the SEC.


Each Compensation Committee member is required to:


·

Satisfy the independence requirements of Section 10A(m)(3) of the Securities Exchange Act of 1934, and all rules and regulations promulgated by the SEC as well as the rules imposed by the stock exchange or other marketplace on which our securities may be listed from time to time; and

 

 

·

Meet the definitions of “non-employee director” for purposes of SEC Rule 16b-3 and “outside director” for purposes of Section 162(m) of the Internal Revenue Code.


Pursuant to our Compensation Committee Charter, the Compensation Committee is charged with evaluating and recommending for approval by the Board of Directors the compensation of our executive officers. In addition, the Compensation Committee also evaluates and makes recommendations to the entire Board of Directors regarding grants of options which may be made as director compensation. The Compensation Committee does not delegate these authorities to any other persons nor does it use the services of any compensation consultants.


Mr. McCook is the only member of our Compensation Committee. As we expand our Board of Directors with additional independent directors the number of directors serving on the Compensation Committee will also increase.


29



Director or Officer Involvement in Certain Legal Proceedings


Mr. Compton, Sr. was Co-Chairman and a 25.5% owner of the Country Sampler Stores, LLC, which filed for bankruptcy under Chapter 7 of the Federal Bankruptcy Code in 2006.  No other director or executive officer was involved in any legal proceedings as described in Item 401(f) of Regulation S-K in the past ten years.


Director Independence


Of the four directors, the Company has determined that Mr. Marginson and Mr. McCook would be considered “independent” within the meaning of Rule 5605 of the NASDAQ Marketplace Rules.


ITEM 11.

EXECUTIVE COMPENSATION

 

Summary Compensation Table


The following table summarizes the overall compensation earned over each of the past two fiscal years ending December 31, 2013 by (1) each person who served as our principal executive officer during fiscal 2013; and (2) our two most highly compensated executive officers as of December 31, 2013 with compensation during fiscal 2013 of $100,000 or more (the “Named Executive Officers”).  The value attributable to any option awards is computed in accordance with ASC Topic 718.


SUMMARY COMPENSATION TABLE


Name and principal position
(a)

 

Year
(b)

 

Salary
($)
(c)

 

Bonus
($)
(d)

 

Stock
Awards
($)
(e)

 

Option
Awards
($)
(f)

 

Non-Equity Incentive Plan Compensation ($)
(g)

 

Non-qualified Deferred Compensation Earnings ($)
(h)

 

All
Other
Compensation
($)
(i)

 

Total
($)
(j)

Hal Compton Jr. (1)

 

2013

 

228,223

 

 

17,000

 

 

 

 

18,591

 

263,814

 

 

2012

 

162,215

 

 

20,000

 

 

 

 

14,344

 

196,559

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Robyn Priest (2)

 

2012

 

70,728

 

 

37,200

 

 

 

 

11,270

 

119,198

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alfredo Ollivierre  (3)

 

2013

 

129,184

 

 

8,500

 

 

 

 

21,722

 

159,406

 

 

2012

 

123,000

 

 

25,000

 

 

 

 

6,646

 

154,646

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jens Mielke (4)

 

2013

 

165,553

 

 

 

 

 

 

4,847

 

170,400


(1)

Hal Compton Jr. has served as our CEO since May 2009. During 2013, in addition to his salary, his compensation included stock awards of 500,000 shares of our common valued at $17,000. Other compensation for fiscal 2013 and 2012 included $18,591 and $14,344, respectively for payment of health, dental and life insurance.

 

 

(2)

Robyn Priest served as our CFO from February 1, 2012 until December 20, 2012.  During 2012, in addition to her salary, compensation included stock awards of 2,387,454 shares of our common stock valued at $37,200.  Other compensation for fiscal 2012 included $11,270 for payment of health, dental, and life insurance.

 

 

(3)

Alfredo Ollivierre has served as our COO since May 2009. During 2013, in addition to his salary, his compensation included stock awards of 250,000 shares of our common valued at $8,500. During 2012, in addition to his salary, his compensation included stock awards of 1,250,000 shares of our common valued at $25,000. Other compensation for fiscal 2013 and 2012 included $21,722 and $6,646, respectively for payment of health, dental and life insurance.

 

 

(4)

Jens Mielke had served as CFO since August 21, 2013.  Other compensation for fiscal 2013 included $4,847 for payment of health, dental, and life insurance.


30



Compensation for our current named executive officers is determined with the goal of attracting and retaining high quality executive officers and encouraging them to work as effectively as possible on our behalf. Compensation is designed to reward executive officers for successfully meeting their individual functional objectives and for their contributions to our overall development. For these reasons, the elements of compensation of our executive officers are salary and bonus. Salary is paid to cover an appropriate level of living expenses for the executive officers and the bonus is paid to reward the executive officer for individual and company achievement. The compensation is determined by the Compensation Committee of our Board of Directors.


We believe that the salaries paid to our executive officers during 2013 and 2012 are indicative of the objectives of our compensation program and reflect the fair value of the services provided to our Company.  Salary is designed to attract, as needed, individuals with the skills necessary for us to achieve our business plan, to motivate those individuals, to reward those individuals fairly over time, and to retain those individuals who continue to perform at or above the levels that we expect. When setting and adjusting individual executive salary levels, we consider the relevant established salary range, the named executive officer’s responsibilities, experience, potential, individual performance and contribution. We also consider other factors such as our overall corporate budget for annual merit increases, unique skills, demand in the labor market and succession planning.


As of December 31, 2013, there were no unexercised or unvested option awards or stock awards in place for any Director or Officer of the Company.


2009 Stock Option Plan


For the year ended December 31, 2013, no option awards were granted and no option awards were in place.


Pension Benefits


Other than the employee directed 401(k) payroll contribution plan, there were no pension benefit plans in effect in 2013.


Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation Plans


There were no non-qualified defined contribution or other nonqualified deferred compensation plans in effect in 2013.


Employment Agreements


There were no employment agreements in effect in 2013.


Director Compensation


Our Board of Directors is comprised of Hal Compton, Sr., Hal Compton, Jr., Bill Marginson and Barry McCook. Hal Compton, Jr. does not receive any compensation specifically for his Board services. Except for the options granted in fiscal year 2009 and stock awards granted in fiscal year 2010 and 2011, there were no direct compensation arrangements in place for members of our Board of Directors and we have not finalized any plan for such compensation in the future for their services as directors. The compensation payable to each individual for their service on our Board may be determined from time to time by our Board of Directors based upon the amount of time expended by each of the directors on our behalf.


ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS


At June 20, 2014 we had 997,705,056 shares of our common stock issued and outstanding.  The following table sets forth information regarding the beneficial ownership of our common stock as of June 20, 2014 by:


·

each person known by us to be the beneficial owner of more than 5% of our common stock;

 

 

·

each of our directors;

 

 

·

each of our named executive officers; and

 

 

·

our named executive officers, directors and director nominees as a group.


31



Unless otherwise indicated, the persons and entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite the stockholder’s name, subject to community property laws, where applicable. Unless otherwise indicated, the address of each stockholder listed in the table is c/o Hasco Medical, Inc. 15928 Midway Road, Addison, Texas 75001.


Name and Address of Beneficial Owner

 

Title  

 

Beneficially

Owned

Post-Share

Exchange

(1)

 

Percent

of Class

 

 

 

 

 

 

 

 

 

5% Owners

 

 

 

 

 

 

 

 

 

Mark Lore

 

 Former Vice-President

 

 

176,944,450

 

 

17.8%

 

HASCO Holdings, LLC

 

 

 

 

646,557,142

 

 

64.9%

 

 

 

 

 

 

 

 

 

 

 

Officers and Directors

 

 

 

 

 

 

 

 

 

Hal Compton, Sr. (2)

 

Chairman of the Board

 

 

255,979,737

 

 

25.7%

 

Scott Compton (2)

 

Former Chief Mktg. Officer

 

 

216,519,047

 

 

21.7%

 

Hal Compton, Jr. (2)

 

Chief Executive Officer

 

 

219,624,310

 

 

22.1%

 

Barry McCook

 

Board member

 

 

1,668,421

 

 

*

 

Bill Marginson

 

Board member

 

 

773,684

 

 

*

 

Mark Lore

 

Former Vice-President

 

 

176,944,450

 

 

17.8%

 

Alfredo Ollivierre III

 

Chief Operating Officer

 

 

4,052,632

 

 

*

 

Timothy Spence

 

Former Chief Financial Officer

 

 

297,560

 

 

*

 

All directors and executive officers as a group (8 people)

 

 

 

 

875,859,841

 

 

87.9%

 


*     represents less than 1%


(1)

Beneficial ownership has been determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934.  Unless otherwise noted, we believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them.

 

 

(2)

Includes 216,852,380 shares of common stock owned by HASCO Holdings, LLC, our largest stockholder.  HASCO Holdings, LLC is a Texas limited liability company of which Hal Compton Sr., Hal Compton, Jr. and Scott Compton are each managers and each own 33.3% of the outstanding membership interests.


ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE


During 2013, 1,047,560 shares of common stock valued at $29,500 were issued to an officer as employee compensation, 2,895,374 shares of common stock valued at $53,350 were issued to key employees as employee compensation and 239,370 shares of common stock valued at $7,316 were issued to directors as board compensation.


In fiscal 2013, a total of 297,560 shares of common stock valued at $4,000 were issued to our former Chief Financial Officer as employee compensation.


On November 26, 2013, the Company issued 1,000,000 shares valued at $21,200 in lieu of note payments.


In connection with the acquisition of Auto Mobility Sales, on September 4, 2013 the Company issued a promissory note to a Related Party in the original amount of $210,000 over 60 months at an interest rate of 5%, with payments commencing on November 1, 2013.  The note matures on October 1, 2018.  Monthly installment payments are $3,963.


In connection with the acquisition of Auto Mobility Sales, on September 4, 2013 the Company issued a promissory note to a Related Party in the original amount of $140,000 over 60 months at an interest rate of 5%, with payments commencing on November 1, 2013.  The note matures on October 1, 2018.  Monthly installment payments are $2,642.


In December 2012, a commercial Note Payable to Hancock Bank was converted to a Note Payable to a related party.


32



On March 1, 2012, Hasco Medical, Inc. completed the acquisition of Ride-Away.  Pursuant to the terms of the Stock Purchase Agreement, Hasco Medical paid Mark Lore a $3,000,000 Promissory Note bearing 5% simple interest, principal and interest payable monthly over 10 years. Subsequently Mr. Lore became an officer of the Company and has since resigned.


In connection with the acquisition of Ride-Away, the Company issued a note to a Related Party in the original amount of $500,000 over 60 months at an interest rate of 6%, with payments commencing on April 1, 2012.  The note matures on March 1, 2017.  Monthly installment payments are $9,685.


On March 1, 2012, Hasco Medical, Inc. completed the acquisition of Ride-Away.  Pursuant to the terms and conditions of the Stock Purchase Agreement, Hasco Medical paid a non-related party 176,944,450 shares of Hasco Medical, Inc. common stock, valued at $2,500,000.  Subsequently the payee became a related party as an officer of the Company.  As of April 8, 2013, the officer resigned.


In December 2011, the Company issued a total of 21,111,111shares of common stock, at the fair market value of $365,000, in exchange of accrued debts due to Hasco Holdings, LLC.


In March 2011, the Company issued 9,000,000 shares in connection with the payment of accrued management fees of $180,000 to Hasco Holdings, LLC.


In March 2011, in connection with the sale of the Company’s common stock, the Company issued 100,000 shares of common stock to the Company’s director for net proceeds of approximately $1,400.


In June 2008, the Company entered into a note payable with its largest shareholder, Hasco Holdings, LLC.  The loan was in the amount of $150,000, and bore interest at 10% per annum.  The loan had a term of five years. As part of the acquisition of Mobility Freedom, an additional $1,850,000 note was issued to this shareholder and both these notes were combined into an aggregated ten (10) year installment note with a face value of $2,000,000 at a more favorable interest rate of 5%.  No compensation was demanded or paid for the reduced interest rate.


ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES.


The following table sets forth the fees billed by our principal independent accountants for each of our last two fiscal years for the categories of services indicated.


 

 

Year Ended December 31,

 

Category

 

2013

 

2012

 

Audit Fees (1)

 

$

70,000

 

$

50,000

 

Audit Related Fees (2)

 

 

17,000

 

 

7,500

 


(1)

Consists of fees billed for the audit of our annual financial statements, review of our Form 10-K and services that are normally provided by the accountant in connection with year-end statutory and regulatory filings or engagements.

 

 

(2)

Consists of fees billed for the review of our quarterly financial statements, review of our forms 10-Q and 8-K and services that are normally provided by the accountant in connection with non year end statutory and regulatory filings on engagements.


Our Board of Directors has adopted a procedure for pre-approval of all fees charged by our independent auditors. Under the procedure, the Board approves the engagement letter with respect to audit, tax and review services. Other fees are subject to pre-approval by the Board, or, in the period between meetings, by a designated member of the Board. Any such approval by the designated member is disclosed to the entire Board at the next meeting. The audit and tax fees paid to the auditors with respect to fiscal year 2013 were pre-approved by the entire Board of Directors.


33



PART IV


ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES.


Exhibit No.

 

Exhibit Description

 

 

 

2.1

 

Agreement and Plan of Merger between BBC Graphics of Palm Beach, Inc. HASCO Holdings, LLC and Southern Medical & Mobility, Inc. *

 

 

 

2.2

 

Amendment to Articles of Incorporation of BBC Graphics, Inc. *

 

 

 

2.3

 

Bylaws of Southern Medical & Mobility, Inc. *

 

 

 

2.4

 

Schedule of Directors and Officers of Surviving Corporation *

 

 

 

2.5

 

Articles of Incorporation of Southern Medical & Mobility, Inc. *

 

 

 

2.6

 

Amendments to the Articles of Incorporation of Southern Medical & Mobility, Inc. *

 

 

 

2.7

 

Amendment to Stock Sale and Purchase Agreement *

 

 

 

2.8

 

Delaware Certificate of Merger between Southern Medical Acquisition, Inc. and Southern Medical & Mobility, Inc. *

 

 

 

10.1

 

Floor Plan Financing Agreement

 

 

 

21.1

 

List of Subsidiaries **

 

 

 

31.1

 

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 **

 

 

 

31.2

 

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 **

 

 

 

32.1

 

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **

 

 

 

32.2

 

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **

 

 

 

101

 

Interactive Data Files of Financial Statements and Notes contained in this Annual Report on Form 10-K.**


* Previously filed


** In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Annual Report on Form 10-K shall be deemed “furnished” and not “filed.”


34



SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



 

HASCO MEDICAL, INC.

 

 

July 31, 2014

By:/s/ Hal Compton, Jr.

 

Hal Compton, Jr.,

 

Chief Executive Officer, principal executive officer



Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.



Signature

 

Title

 

Date

 

 

 

 

 

/s/ Hal Compton, Jr.

 

Chief Executive Officer, principal executive officer

 

July 31, 2014

Hal Compton, Jr.

 

 

 

 

 

 

 

 

 

/s/ Shane Jorgenson

 

Chief Financial Officer, principal financial and accounting officer

 

July 31, 2014

Shane Jorgenson

 

 

 

 

 

 

 

 

 

/s/ Hal Compton, Sr.

 

Director

 

July 31, 2014

Hal Compton, Sr.

 

 

 

 

 

 

 

 

 

/s/ Bill Marginson

 

Director

 

July 31, 2014

Bill Marginson

 

 

 

 

 

 

 

 

 

/s/ Barry McCook

 

Director

 

July 31, 2014

Barry McCook

 

 

 

 


35



HASCO MEDICAL, INC. AND SUBSIDIARIES


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



CONTENTS


Reports of Independent Registered Public Accounting Firms

F-2 to F-3

 

 

Consolidated Financial Statements:

 

 

 

Consolidated Balance Sheets as of December 31, 2013 and 2012

F-4

 

 

Consolidated Statements of Operations for the years ended December 31, 2013 and 2012

F-5

 

 

Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2013 and 2012

F-6

 

 

Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012

F-7

 

 

Notes to Audited Consolidated Financial Statements

F-8 to F-22


F-1



REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM



To the Board of Directors and Stockholders

HASCO Medical, Inc. and Subsidiaries


We have audited the accompanying consolidated balance sheet of HASCO Medical, Inc. and Subsidiaries (the Company) as of December 31, 2013, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for the year ended December 31, 2013. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.


We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.


In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of HASCO Medical, Inc. and Subsidiaries as of December 31, 2013, and the results of their operations and their cash flows for the year ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.



/s/ WEAVER AND TIDWELL, L.L.P.


Dallas, Texas

July 31, 2014


F-2



2451 N. McMullen Booth Road

Suite.308

Clearwater, FL 33759


Toll fee: 855.334.0934


Fax: 800.581.1908



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and

Stockholders of HASCO Medical, Inc. and Subsidiaries


We have audited the consolidated balance sheet of HASCO Medical, Inc. and its subsidiaries as of December 31, 2012 and the related consolidated statement of operations, changes in stockholders’ equity, and cash flows for the year then ended.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audit.


We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements were free of material misstatement.  The Company was not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that were appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.


In our opinion, the financial statements, referred to above, present fairly, in all material respects, the financial position of HASCO Medical, Inc. and Subsidiaries as of December 31, 2012, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.


These financial statements have been restated to make corrections as described in Note 15.



DKM Certified Public Accountants

Clearwater, Florida

March 29, 2013, except for Note 15 which is dated February 14, 2014.


F-3



Hasco Medical, Inc. and Subsidiaries

Consolidated Balance Sheets


 

 

December 31,

 

 

 

2013

 

2012

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash

 

$

150,313

 

$

850,391

 

Accounts receivable, net of allowance for doubtful accounts of $686,345 and $414,718, respectively

 

 

6,182,680

 

 

7,116,008

 

Inventory, net

 

 

11,572,060

 

 

10,489,388

 

Deferred tax asset, short-term

 

 

413,193

 

 

 

Prepaid expenses and other current assets

 

 

504,819

 

 

177,942

 

Total current assets

 

 

18,823,065

 

 

18,633,729

 

 

 

 

 

 

 

 

 

Property & equipment, net of accumulated depreciation of $1,164,634 and $1,604,689, respectively

 

 

2,141,212

 

 

2,162,729

 

 

 

 

 

 

 

 

 

Intangible assets, net of accumulated amortization of $10,192 and $0, respectively

 

 

6,214,034

 

 

5,670,013

 

Deferred tax asset, long-term-term

 

 

149,204

 

 

 

Other non-current assets

 

 

604,965

 

 

600,848

 

Total Assets

 

$

27,932,480

 

$

27,067,319

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

1,849,702

 

$

2,528,005

 

Cash overdraft

 

 

175,572

 

 

 

Customer deposits and deferred revenue

 

 

388,433

 

 

909,465

 

Line of credit

 

 

2,303,143

 

 

6,081,368

 

Notes payable – Floor Plan

 

 

12,174,639

 

 

7,421,638

 

Obligation under capital leases

 

 

366,658

 

 

510,555

 

Current portion of note payable

 

 

376,685

 

 

114,265

 

Current portion of  note payable, related party

 

 

353,008

 

 

506,787

 

Other current liabilities

 

 

493,923

 

 

377,724

 

Total current liabilities

 

 

18,481,763

 

 

18,449,807

 

 

 

 

 

 

 

 

 

Obligation under capital leases, net of current portion

 

 

817,828

 

 

531,944

 

Notes payable, net of current portion

 

 

4,075,802

 

 

1,833,746

 

Notes payable to related party, net of current portion

 

 

1,947,214

 

 

4,556,861

 

Total liabilities

 

 

25,322,607

 

 

25,372,358

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 3,000,000 shares authorized, none issued and outstanding

 

 

 

 

 

Common stock, $0.001 par value, 2,000,000,000 shares authorized; 993,134,076 and 987,852,772 shares issued and outstanding, respectively

 

 

993,134

 

 

987,853

 

Additional paid-in capital

 

 

6,669,056

 

 

6,560,979

 

Accumulated deficit

 

 

(5,052,317

)

 

(5,853,871

)

Total stockholders’ equity

 

 

2,609,873

 

 

1,694,961

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Equity

 

$

27,932,480

 

$

27,067,319

 


The accompanying notes are an integral part of these consolidated financial statements.


F-4



Hasco Medical, Inc. and Subsidiaries

Consolidated Statements of Operations

For the Years Ended December 31,


 

 

2013

 

2012

 

 

 

 

 

 

 

 

 

Product sales

 

$

58,800,359

 

$

51,506,867

 

Rental revenue

 

 

1,276,154

 

 

600,520

 

Service and other

 

 

12,837,102

 

 

10,886,830

 

Total net revenues

 

 

72,913,615

 

 

62,994,217

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

54,715,897

 

 

48,614,216

 

 

 

 

 

 

 

 

 

Gross profit

 

 

18,197,718

 

 

14,380,001

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Selling and marketing

 

 

4,298,770

 

 

3,703,329

 

General and administrative

 

 

11,177,310

 

 

8,420,550

 

Amortization and depreciation

 

 

1,053,808

 

 

1,285,202

 

Total operating expenses

 

 

16,529,888

 

 

13,409,081

 

 

 

 

 

 

 

 

 

Income from operations

 

 

1,667,830

 

 

970,920

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

Other income

 

 

487,311

 

 

588,880

 

Impairment of intangible assets

 

 

 

 

(105,454)

 

Acquisition fees

 

 

 

 

(26,740)

 

Interest expense

 

 

(1,068,971

)

 

(911,958)

 

Total other income (expense)

 

 

(581,660

)

 

(455,272)

 

 

 

 

 

 

 

 

 

Income from continuing operations before income taxes

 

 

1,086,170

 

 

515,648

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

62,578

 

 

6,673

 

Income from continued operations

 

 

1,023,592

 

 

508,975

 

(Loss) from discontinued operations

 

 

(222,038

)

 

(426,675

)

Net income

 

$

801,554

 

$

82,300

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

Basic and dilutive – continued operations

 

$

0.00

 

$

0.00

 

Basic and dilutive – discontinued operations

 

$

0.00

 

$

0.00

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

Basic and dilutive

 

 

989,545,590

 

 

948,357,991

 


The accompanying notes are an integral part of these consolidated financial statements.


F-5



Hasco Medical, Inc. and Subsidiaries

Consolidated Statement of Stockholders’ Equity (Deficit)


 

 

 

 

 

 

 

 

 

 

Stock-

 

 

 

Preferred

 

Common

 

Additional

 

 

 

Holders’

 

 

 

shares

 

$0.001
par

 

shares

 

$0.001
par

 

Paid in Capital

 

Retained
Deficit

 

Equity
(Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2011

 

 

$

 

794,578,818

 

$

794,579

 

$

4,007,004

 

$

(5,936,171

)

$

(1,134,588

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

 

 

 

2,813,238

 

 

2,813

 

 

37,077

 

 

 

 

39,890

 

Employee compensation

 

 

 

 

6,713,288

 

 

6,713

 

 

107,514

 

 

 

 

114,227

 

Settlement of services

 

 

 

 

6,802,978

 

 

6,803

 

 

86,329

 

 

 

 

93,132

 

Acquisition of Ride Away

 

 

 

 

176,944,450

 

 

176,945

 

 

2,323,055

 

 

 

 

2,500,000

 

Net income

 

 

 

 

 

 

 

 

 

 

82,300

 

 

82,300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2012

 

 

$

 

987,852,772

 

$

987,853

 

$

6,560,979

 

$

(5,853,871

)

$

1,694,961

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

 

 

 

158,820

 

 

159

 

 

1,841

 

 

 

 

2,000

 

Employee compensation

 

 

 

 

4,122,484

 

 

4,122

 

 

86,036

 

 

 

 

90,158

 

Loan Payments

 

 

 

 

1,000,000

 

 

1,000

 

 

20,200

 

 

 

 

21,200

 

Net income

 

 

 

 

 

 

 

 

 

 

801,554

 

 

801,554

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2013

 

 

$

 

993,134,076

 

$

993,134

 

$

6,669,056

 

$

(5,052,317

)

$

2,609,873

 


The accompanying notes are an integral part of these consolidated financial statements.


F-6



Hasco Medical, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Year Ended December 31,


 

 

 

2013

 

 

2012

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

Net income

 

$

801,554

 

$

82,300

 

Adjustment to reconcile net income to net cash provided by operations:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,126,104

 

 

1,285,202

 

Impairment of intangible assets

 

 

 

 

105,454

 

Gain on disposal of property and equipment

 

 

(63,195

)

 

(124,023

)

Issuance of common stock in settlement of services

 

 

 

 

93,132

 

Stock based compensation

 

 

90,183

 

 

114,227

 

Deferred tax asset

 

 

(562,397

)

 

 

Bad debt expense

 

 

379,490

 

 

(72,835

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

884,871

 

 

(1,932,642

)

Inventory

 

 

(503,722

)

 

3,702,675

 

Prepaid expenses

 

 

(279,363

)

 

126,213

 

Other assets

 

 

(4,117

)

 

(341,773

)

Accounts payable and accrued expenses

 

 

(749,625

)

 

(1,617,403

)

Other current liabilities

 

 

116,199

 

 

196,944

 

Customer deposits and deferred revenue

 

 

(521,032

)

 

(117,373

)

Net Cash Provided by Operating Activities

 

 

714,950

 

 

1,500,098

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

Proceeds from the sale of property and equipment

 

 

1,900

 

 

241,089

 

Purchase of property and equipment

 

 

(202,291

)

 

(511,091

)

Acquisition of investment in subsidiary, net of cash acquired

 

 

(468,978

)

 

(500,000

)

Net Cash Used in Investing Activities

 

 

(669,369

)

 

(770,002

)

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

Proceeds from floor plan financing

 

 

35,335,676

 

 

23,200,055

 

Repayments of floor plan financing

 

 

(30,999,404

)

 

(22,762,293

)

Proceeds from line of credit

 

 

10,181,910

 

 

772,561

 

Repayments of line of credit

 

 

(13,960,135

)

 

(685,560

)

Proceeds from note and loan payables

 

 

16,420

 

 

524,449

 

Repayments of note and loan payables

 

 

(375,809

)

 

(343,276

)

Repayments of loan payables – related party

 

 

(229,166

)

 

(164,775

)

Principal payments under capital lease obligations

 

 

(892,723

)

 

(673,216

)

Cash overdraft

 

 

175,572

 

 

 

Proceeds from issuance of stock

 

 

2,000

 

 

39,890

 

Net Cash Used In Financing Activities

 

 

(745,659

)

 

(92,165

)

 

 

 

 

 

 

 

 

Net increase (decrease) in Cash

 

 

(700,078

)

 

637,931

 

Cash at beginning of period

 

 

850,391

 

 

212,460

 

Cash at end of period

 

$

150,313

 

$

850,391

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

Interest paid

 

$

1,075,129

 

$

934,212

 

Taxes paid

 

$

256,543

 

$

107,534

 

 

 

 

 

 

 

 

 

Supplemental Schedule of Noncash Investing and Financing Activities

 

 

 

 

 

 

 

Loan payments through issuance of common stock

 

$

21,200

 

$

 

Promissory notes issued for the acquisition of assets

 

$

350,000

 

$

3,000,000

 

Vehicle purchased through Capital Lease

 

$

1,288,285

 

$

1,089,348

 


The accompanying notes are an integral part of these consolidated financial statements.


F-7



HASCO MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2013 and 2012


NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Hasco Medical, Inc., formerly BBC Graphics of Palm Beach Inc. was incorporated in May 1999 under the laws of the State of Florida. Through a series of transactions, BBC Graphics of Palm Beach Inc. (at the time an inactive corporation) became Hasco Medical, Inc. (Hasco).  Concurrently, Hasco Medical, Inc. acquired Southern Medical & Mobility.  In May, 2011, Hasco acquired Mobility Freedom, Inc. and Wheelchair Vans of America.  In November, 2011, Hasco acquired Certified Medical Systems II (Certified Medical On March 1, 2012, Hasco Medical, Inc. completed the acquisition of Ride-Away Handicap Equipment Corp., a closely-held New Hampshire corporation (Ride-Away).  On September 4, 2013, Hasco Medical, Inc. completed the acquisition of Auto Mobility Sales, Inc. (Auto Mobility).


Services and Products


Historically our operations were focused on the provision of a diversified range of home health care services and products. Following our May 2011 acquisition of Mobility Freedom and our March 2012 acquisition of Ride-Away, our operations are conducted within two business units:


·

Modified Mobility Vehicles – conducts sales of disabled accessible vans, parts and services as well as the rental of such vehicles.  This segment consists of Ride-Away Handicap Equipment Corp. which has eleven locations from Maine to Florida, Mobility Freedom Inc. which has five locations in Florida and includes the d.b.a. “Wheelchair Vans of America” operating our van rental operations, and Auto Mobility Sales, Inc., which has two (2) locations in Florida.  “Certified Medical Auto” is an inactive entity.

 

 

·

Home Health Care - conducts operations in the home health care market.  Southern Medical & Mobility, Inc. is located in Mobile, Alabama, and Certified Medical Systems II is located in Ocala, Florida.


With our acquisitions of Mobility Freedom, Ride-Away, and Auto Mobility, our modified mobility vehicles segment comprises more than 97% of our consolidated revenues.  As a consequence and for purposes of consolidated financial statement presentation, our Home Health Care segment is no longer materially relevant when considering the consolidated financial statements as a whole.


Our corporate headquarters and principal corporate operations are conducted in Addison, Texas, a northern suburb of Dallas, Texas.  We also house a portion of our corporate operations in Londonderry, New Hampshire and Clermont, Florida.  Hasco Medical Inc. is a Florida corporation.


We have a single vendor that represents 58% of our purchases.  Our relationship with this vendor is excellent and we do not anticipate any change in the status of that relationship.  Should there be any such change; management believes that substantially similar products are available from other competitive vendors at terms that will not have a substantial effect on our financial condition.


Modified Mobility Vehicles


Ride-Away and Mobility Freedom serve individuals with physical limitations that need specialty equipment in order to safely operate a vehicle.  We also provide products for families and care-givers with transport requirements for those under care.  In certain circumstances both the van itself and its specialty equipment are paid for directly by a federal or state agency.  For the periods ended December 31, 2013 and 2012, approximately 26% and 16% of the modified mobility vehicles segment revenue was derived from veterans receiving benefits from the United States Department of Veterans Affairs (the “VA”).   Mobility Freedom and Ride-Away are both VA and Vocational Rehabilitation (VR) certified vendors in all the states in which we operate.


We derive approximately 26% of our Modified Mobility Vehicles Segment revenue from the United States Department of Veterans Affairs (the “VA”).


The Modified Mobility Vehicle industry is subject to extensive regulation by a number of governmental entities at the federal, state and local levels. The industry also is subject to frequent legislative and regulatory changes.  If we fail to comply with the laws and regulations applicable to our business, we could suffer civil and/or criminal penalties and we could be excluded from participating in VA and other federal and state funding programs. It is the judgment of management that we are in compliance with all such laws and regulations to the extent they may materially affect our financial condition.


F-8



Ride-Away has eleven corporate owned stores which are located in Beltsville, MD, East Hartford, CT, Essex Junction, VT, Gray, ME, Londonderry, NH, Norfolk, VA, Norristown, PA, North Attleboro, MA, Norwood, MA, Richmond VA, and Tampa, FL.  Mobility Freedom has five corporate owned stores located in Orlando, Largo, Clermont, Bunnell and Ocala, Florida.  Auto Mobility has locations in Fort Lauderdale and Lake Worth, Florida.


Wheelchair Vans of America specializes in renting conversion vans to disabled individuals, and is located in Orlando, Florida. Our rental operations compliment the retail products we provide through our Mobility Freedom and Ride-Away subsidiaries.


On June 21, 2013, the Board approved the closure of Southern Medical. This closure began on June 25, 2013.


Discontinued Operations


During the second quarter of 2013, the Company initiated a plan to liquidate the division of Southern Medical and Mobility. These operations were originally reported in the home health care segment. The Company assessed the fair value of the operations less the disposal costs and concluded there is no impairment of the carrying value of the assets.  Management has also determined that the amount of assets continued to be realized is immaterial and therefore not separately disclosed.


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Basis of Presentation and Accounting Policy


The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) and present the financial statements of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.  The consolidated entities are:


·

Hasco Holdings, Inc.;

·

Southern Medical & Mobility, Inc.; (discontinued operations)

·

Mobility Freedom, Inc.;

·

Ride Away Handicapped Equipment, Inc.;

·

Auto Mobility Sales, Inc.;

·

Certified Medical Systems II, Inc.; and  

·

Certified Medical Auto Division, Inc. (inactive). 


Reclassifications


Prior period financial statement amounts have been reclassified to conform to current period presentation.


Use of Estimates


The preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities that affect the disclosure of contingent assets and liabilities at the date of the balance sheets and affect the reported amounts of revenues and expenses during the reporting periods. Actual results could differ significantly from those estimates. Significant estimates in 2013 and 2012 include the allowance for doubtful accounts, the valuation of inventory, the useful life of property and equipment, and the fair value of acquisitions.


Fair Value of Financial Instruments


Effective January 1, 2008, the Company adopted FASB ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements, and establishes a framework for measuring fair value and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s financial position or operating results, but did expand certain disclosures.


ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:


F-9



 

Level 1:

Observable inputs such as quoted market prices in active markets for identical assets or liabilities

 

 

 

 

Level 2:

Observable market-based inputs or unobservable inputs that are corroborated by market data

 

 

 

 

Level 3:

Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.


The carrying amounts of financial instruments, including cash, accounts receivable, accounts payable and accrued liabilities, and promissory note, approximated fair value as of December 31, 2013 and December 31, 2012, because of the relatively short-term maturity of these instruments and their market interest rates.


Revenue Recognition


The Company recognizes revenue in accordance with FASB ASC Topic 605, “Revenue Recognition”, and with the guidelines of the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition”. Under SAB 104, four conditions must be met before revenue can be recognized: (i) there is persuasive evidence that an arrangement exists, (ii) delivery has occurred or service has been rendered, (iii) the price is fixed or determinable, and (iv) collection is reasonably assured.  Revenues consist of the sales of new and used vehicles, sales of parts and automotive services, commissions from finance and insurance products, vehicle rentals, sales of durable medical equipment and home health care services.  The Company recognizes revenue in the period in which products are sold or the services are rendered and only if there is reasonable expectation of collection.  For vehicles, a sale is recorded only when title has transferred and the vehicle has been delivered.  Rebates received from manufacturers are recorded as a reduction of the costs of each vehicle and recognized upon the sale of the vehicle or when earned under a specific manufacturer program.


Rental fees for vehicles and medical equipment and fees for home health care services are recognized over the course of the rental or service term, with unbilled amounts accrued at period end in cases where the rental term extends beyond the end of a period.  


In certain instances, customers place deposits on vehicles or special order parts for service and conversions.  Deposits are not recognized as revenue until the related vehicle or part is sold.


The Company arranges financing for customers through various institutions and receives financing fees based on the difference between the loan rates charged to customers and wholesale financing rates set by the financing institution.  The Company also receives fees from the sale of extended service contracts, warranties and vehicle security systems.


Cash and Cash Equivalents


The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company places its cash with a high credit quality financial institutions. The Company’s accounts at these institutions are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000.  From time to time and for the periods ended December 31, 2013 and December 31, 2012, the Company reached bank balances exceeding the FDIC insurance limit. To reduce its risk associated with the failure of such financial institution, the Company evaluates, at least annually, the rating of the financial institution in which it holds deposits.


Concentrations of Credit Risk


Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable, and notes payable. The Company’s investment policy is to invest in low risk, highly liquid investments. The Company does not believe it is exposed to any significant credit risk in its cash investment.


The Company performs on-going credit evaluations of its customer base including those included in accounts receivable at December 31, 2013 and December 31, 2012, and generally does not require collateral for revenue generated from equipment sales and supplies.  The Company maintains reserves for potential credit losses and such losses have been within management’s expectations.


Accounts Receivable


Accounts receivable includes receivables due from the Veterans Administration and third party payers.  The bad debt allowance as of December 31, 2013 and December 31, 2012 was $686,345 and $414,718, respectively. Management performs ongoing evaluations of its accounts receivable.


F-10



Due to the nature of the industry of medical equipment and supplies and the reimbursement environment in which that segment of the Company operates, certain estimates are required to record net revenues and accounts receivable at their net realizable values. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity and uncertainty of reimbursement amounts for certain services from certain payers may result in adjustments to amounts originally recorded. Such adjustments are typically identified and recorded at the point of cash application, claim denial or account review.


Management performs periodic analyses to evaluate accounts receivable balances to ensure that recorded amounts reflect estimated net realizable value. Specifically, management considers historical realization data, accounts receivable aging trends, and other operating trends. Also considered are relevant business conditions such as governmental and managed care payer claims processing procedures and system changes.


Accounts receivable are reduced by an allowance for doubtful accounts which provides for those accounts from which payment is not expected to be received, although services were provided and revenue was earned. Upon determination that an account is uncollectible, it is either written-off or charged to the allowance.


Inventory


Inventory is valued at the lower of cost or market on a first-in first-out basis and includes finished goods, parts and supplies and work in process.  Vehicle inventory is valued using specific identification.


Property and Equipment


Property and equipment, including rental equipment, are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. Depreciation of rental equipment is computed using the straight-line method over the estimated useful lives, generally one to five years. Depreciation of rental equipment is charged to cost of sales. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized.  When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition.


Impairment of Long-Lived Assets


The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company did not record any impairment charges for the years ended December 31, 2013 and December 31, 2012.


Impairment of Indefinite-Lived Intangible Assets


The Company reviews indefinite-lived intangible assets for impairment annually at December 31. The Company recognizes an impairment loss when the sum of expected discounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company recorded an impairment charge of $105,454 at December 31, 2012 related to its Home Healthcare reporting unit. The Company did not record any impairment charges for the years ended December 31, 2013 and 2012.


Related Parties


Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management, and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions shall be recorded at fair value of the goods or services exchanged. Property purchased from a related party is recorded at the cost to the related party and any payment to or on behalf of the related party in excess of the cost is reflected as a distribution to related party.  


F-11



Advertising


Advertising, marketing and selling is expensed as incurred. Such expenses for the years ended December 31, 2013 and December 31, 2012 totaled $206,348 and $159,608, respectively.


Shipping and Handling Costs


The Company classifies costs related to freight as costs of sales, which was $528,190 and $334,460 as of December 31, 2013 and 2012, respectively.


Investment in Unconsolidated Subsidiaries


Investments in unconsolidated subsidiaries, which are 50% or less owned and/or do not meet accounting standards criteria for consolidation, are accounted for under the equity method. The difference in the Company’s investment in its unconsolidated subsidiary and its share of the underlying equity in the entity is attributable to intangible assets.


Stock Based Compensation


FASB ASC Topic 718: Compensation – Stock Compensation (“ASC 718”) requires companies to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans.  The Company elected to value employee stock options using the Black-Scholes option valuation method that uses assumptions that relate to the expected volatility of the Company’s common stock, the expected dividend yield of our stock, the expected life of the options and the risk free interest rate. Such compensation amounts, if any, are amortized over the respective vesting periods or period of service of the option grant.


Certain employees receive a portion of their compensation as Company common stock, and other employees receive the Company’s stock as part of their bonus plans.  This compensation is valued at the trading value of the shares at the date of issuance.


Income Taxes


Deferred income tax assets and liabilities are computed for differences between the carrying amounts of assets and liabilities for financial statement and tax purposes. Deferred income tax assets are required to be reduced by a valuation allowance when it is determined that it is more likely than not that all or a portion of a deferred tax asset will not be realized. In determining the necessity and amount of a valuation allowance, management considers current and past performance, the operating market environment; tax planning strategies and the length of tax benefit carry forward periods.


Pursuant to accounting standards related to the accounting for uncertainty in income taxes, the evaluation of a tax position is a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50% likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. The accounting standard also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition.  The adoption had no effect on the Company’s consolidated financial statements.  The Company’s tax years 2011 and thereafter remain open to examination.


Earnings Per Share


Earnings per common share are calculated under the provisions of ASC 260. The accounting standard requires the Company to report both basic earnings per share, which is based on the weighted-average number of common shares outstanding, and diluted earnings per share, which is based on the weighted-average number of common shares outstanding plus all potential dilutive common shares outstanding. The computation of diluted net loss per share does not include dilutive common stock equivalents in the weighted average shares outstanding if they would be anti-dilutive. There were no stock options which could potentially dilute earnings per share as of December 31, 2013 and December 31, 2012, respectively.


F-12



The following table sets forth the computation of basic and diluted income per share:


 

 

Year ended
December 31,
2013

 

Year ended
December 31,
2012

 

Numerator:

 

 

 

 

 

 

 

Net income

 

$

801,554

 

$

82,300

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

Denominator for basic income per share

 

 

 

 

 

 

 

(weighted-average shares)

 

 

989,545,590

 

 

948,357,991

 

 

 

 

 

 

 

 

 

Denominator for dilutive income per share

 

 

 

 

 

 

 

(adjusted weighted-average)

 

 

989,545,590

 

 

948,357,991

 

 

 

 

 

 

 

 

 

Basic and diluted income per share from continuing operations

 

$

0.00

 

$

0.00

 


The number of outstanding shares of our common stock as of December 31, 2013 was 993,134,076.


Subsequent Events


For purposes of determining whether a post-balance sheet event should be evaluated to determine whether it has an effect on the financial statements for the year ended December 31, 2013, subsequent events were evaluated by the Company as of the date on which the consolidated financial statements for the year ended December 31, 2013 were available to be issued, as of the date filed with the Securities and Exchange Commission. The Company has concluded that all subsequent events have been properly disclosed.


Recently Issued Accounting Pronouncements


From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.


NOTE 2 – ACCOUNTS RECEIVABLE


Accounts receivable consisted of the following:


 

 

December 31,

 

 

2013

%

 

2012

%

 

 

 

 

 

 

 

Trade receivables

$

2,993,757 

43.6

$

3,579,308 

47.5

Government receivables

 

3,875,268 

56.4

 

3,951,418 

52.5

 

 

6,869,025 

100.0

 

7,530,726 

100.0

Less: allowances for doubtful accounts

 

(686,345)

 

 

(414,718)

 

Total

$

6,182,680 

 

$

7,116,008 

 


Trade receivables represent amounts due for van sales, van rentals, and medical supplies that have been delivered or sold. Government receivables represent receivables from the VA and other Government bodies related to van sales and rentals listed above.  The Company does not bill Medicare or Medicaid for any vehicle-related sales or service.


Management reviews its accounts receivable on a regular basis to determine if an allowance for doubtful accounts is necessary and adequate. An estimate for doubtful accounts is made when collection of the full amount is no longer probable.  


F-13



NOTE 3 – INVENTORY


Inventory consists of the following, as of December 31:


 

 

2013

 

2012

 

Vehicles

 

$

10,859,361

 

$

8,663,639

 

Work-in-process

 

 

412,829

 

 

605,379

 

Equipment and supplies

 

 

1,008,996

 

 

1,338,685

 

Inventory reserve

 

 

(709,126

)

 

(118,315

)

 

 

$

11,572,060

 

$

10,489,388

 


NOTE 4 – PROPERTY AND EQUIPMENT


Property and equipment consisted of the following, as of December 31:


 

Estimated

 

 

 

 

 

 

 

 

Life

 

2013

 

2012

 

Building improvements

varies

 

$

899,530

 

$

883,589

 

Office furniture and equipment

5 years

 

 

303,561

 

 

313,048

 

Rental equipment

13-36 months

 

 

434,959

 

 

1,165,186

 

Vehicles

5 years

 

 

91,521

 

 

162,273

 

Capitalized leases

varies

 

 

1,576,275

 

 

1,243,322

 

 

 

 

 

3,305,846

 

 

3,767,418

 

Accumulated depreciation

 

 

 

(1,164,634

)

 

(1,604,689

)

 

 

 

$

2,141,212

 

$

2,162,729

 


For the years ended December 31, 2013 and 2012, depreciation expense amounted to $1,126,104 and $1,285,202.


The Company has entered into various financing arrangements in connection with the acquisition of delivery vehicles (see Note 7 below).


NOTE 5 – INTANGIBLE ASSETS


Intangible assets consist of the following:


 

Estimated

 

December 31,

 

December 31,

 

Life

 

2013

 

2012

Goodwill related to acquisition of Mobility Freedom

Indefinite

 

 

1,641,303

 

 

1,641,303

Goodwill related to acquisition of Ride-Away

Indefinite

 

 

1,783,710

 

 

1,783,710

Goodwill related to acquisition of Ride-Away

Indefinite

 

 

105,000

 

 

105,000

Trade name related to acquisition of Mobility Freedom

Indefinite

 

 

400,000

 

 

400,000

Trade name related to acquisition of Ride-Away

Indefinite

 

 

990,000

 

 

990,000

Primary market area related to acquisition of Mobility Freedom

Indefinite

 

 

280,000

 

 

280,000

Primary market area related to acquisition of Ride Away

Indefinite

 

 

470,000

 

 

470,000

Goodwill related to acquisition of Auto Mobility Sales

Indefinite

 

 

284,213

 

 

Trade name related to acquisition of Auto Mobility Sales

2.32 years

 

 

40,000

 

 

Primary market area related to acquisition of Auto Mobility Sales

Indefinite

 

 

150,000

 

 

Non-compete agreements area related to acquisition of Auto Mobility Sales

3 years

 

 

80,000

 

 

Subtotal

 

 

 

6,224,226

 

 

5,670,013

Accumulated amortization

 

 

 

(10,192

)

 

Total

 

 

$

6,214,034

 

$

5,670,013


For the years ended December 31, 2013 and 2012 amortization expense was $10,192 and $0, respectively.


F-14



NOTE 6 – OBLIGATIONS UNDER CAPITAL LEASE


The Company is a lessee of certain property and equipment under capital lease obligations that expire on various dates through February 2015.  The terms of the capital lease obligations provide for monthly lease payments ranging from approximately $200 to $1,307.  The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair market value of the related asset.  The assets are depreciated over the shorter period of the lease term or the estimate useful life.


As of December 31, 2013, future minimum annual commitments under capital lease arrangements are as follows:


Years Ending December 31,

 

 

 

 

 

 

 

2014

 

408,474

 

2015

 

876,525

 

2016

 

413,403

 

 

 

 

 

Total minimum future lease payments

 

1,698,402

 

 

 

 

 

Less: Amounts representing interest

 

(513,916

)

 

 

 

 

Present value of net minimum lease payments

$

1,184,486

 


The following is an analysis of the leased equipment under capital leases as of December 31, 2013, which is included in property and equipment (see Note 4).


Vehicles

 

$1,576,279

 

Computer equipment

 

$15,128

 

Telephone equipment

 

88,817

 

 

 

1,680,224

 

Less: Accumulated depreciation

 

(256,130

)

 

$

1,424,094

 


Interest incurred pursuant to the capital lease obligations was $196,696 and $117,076 for the years 2013 and 2012, respectively.


NOTE 7 – NOTES PAYABLE AND DEBT


Revolving Line of Credit


On November 1, 2012, the Company renewed its Commercial Note agreement with a bank for advances of funds for working capital purposes under a line of credit arrangement for $8,000,000 with an interest calculation of the prime rate plus 0.25% which reflected an interest rate of 3.50% as of December 31, 2013.  The agreement is secured against all property of the borrowers assets, on demand with an annual review as of December 31, 2013.  Payments due are interest only and the interest rate varies based on the Company’s leverage ratio.  The balance of the line of credit was $2,303,143 at December 31, 2013 and $6,081,368 at December 31, 2012.


The Company was in compliance with its line of credit covenants at December 31, 2013 and 2012.


Note Payable – Floor Plan


The Company has a floor plan line of credit with General Electric Credit Corporation with a maximum borrowing capacity of $11,250,000 for Ride-Away, $3,850,000 for Mobility Freedom, and $1,750,000 for Auto Mobility Sales at December 31, 2013.  The borrowing capacity was increased by $5 million on May 20, 2013.  Amounts borrowed for vehicles under this line bear no interest for 60 days and then bear interest at the 90 day LIBOR plus 6.0% for Ride-Away and at the 90 day LIBOR plus 5.5% for Mobility Freedom and Auto Mobility Sales  The loan balance on the vehicle is due when the vehicle is fully funded or paid by the customer.  If the vehicle is not fully funded or paid within nine months of being purchased by the Company and funded by the floor plan, a graduated percentage of the balance is due with the entire balance due at twelve months. The note is secured by the vehicles financed.  At December 31, 2013 and 2012, the Company had $12,174,639 and $7,421,638 respectively,   outstanding under these lines.  With the discretionary nature of this loan agreement, the Lender or the Company can terminate this agreement with a thirty (30) day written notice at any time.


F-15



Subsequent to December 31, 2013, the Company was notified of a default under this floor plan agreement for lack of timeliness of financial statements. This default has been remedied by a “Notice of Covenant Waiver” of such default from the lender.  The line of credit was subject to certain covenants, including the requirement that the Company provide audited financials within 90 days of fiscal year end, as defined by the agreement. At December 31, 2013 the Company was not in compliance with this covenant. The Company has received written notification from the lender that it will not require early prepayment of the line of credit as a result of this covenant violation. The Company was in compliance with all other covenants under the line of credit.


Installment Debt


Installment debts consist of the following, as of December 31:


 

 

2013

 

2012

 

 

 

 

 

 

 

 

 

Vehicle Note Payable, dated August 18, 2011, vehicle financing arrangement for tow truck, original amount of $47,124, 5 years (60 months), 0% interest rate, commenced October 1, 2011, matures on October 1, 2016, monthly installment payments of $785

 

 

25,918

 

 

35,343

 

 

 

 

 

 

 

 

 

Note Payable, dated May 13, 2011, issued for the acquisition of Mobility Freedom, original amount of $2 million, fifteen years (180 months), 6% interest rate, commenced August 1, 2011, matures on July 1, 2026, monthly installment payments of $16,877 secured by grantee from the majority shareholder of Mobility Freedom

 

 

1,785,953

 

 

1,878,293

 

 

 

 

 

 

 

 

 

Note Payable to related party, dated May 13, 2011, associated with the acquisition of Mobility Freedom, original amount of $2 million, ten years (120 months), 5% interest rate, commenced August 1, 2011, matures on July 1, 2021, monthly installment payments of $22,204

 

 

1,618,387

 

 

1,773,591

 

 

 

 

 

 

 

 

 

Note Payable, dated November 16, 2011, issued for the acquisition of Certified Auto, original amount of $50,000, four years (16 quarters), 0% interest rate, commenced January 16, 2012, matures on November 16, 2015, quarterly installment payments of $3,125

 

 

21,785

 

 

34,375

 

 

 

 

 

 

 

 

 

Note Payable, dated March 1, 2012, issued for the acquisition of Ride-Away, original amount of $3,000,000, ten years (120 months), 5% interest rate, commences June 1, 2012, matures on May 2, 2022, monthly installment payments of $31,820.  Note is with the former owner of Ride-Away

 

 

2,618,831

 

 

2,863,060

 

 

 

 

 

 

 

 

 

Note payable to related party, dated March 1, 2012, issued for the acquisition or Ride-Away, original amount of $500,000 , five years (60 months), 6% interest rate, commenced April 1, 2012, matures March 1, 2017, monthly installment payments of $9,685

 

 

342,143

 

 

426,997

 

 

 

 

 

 

 

 

 

Promissory Note payable to a related party, dated September 4, 2013, issued for the acquisition of Auto Mobility Sales, original amount of $210,000 , five years (60 months), 5% interest rate, commenced November 1, 2013, matures October 1, 2018, monthly installment payments of $3,963

 

 

205,877

 

 

 

 

 

 

 

 

 

 

 

Promissory Note payable to a related party, dated September 4, 2013, issued for the acquisition of Auto Mobility Sales, original amount of $140,000 , five years (60 months), 5% interest rate, commenced November 1, 2013, matures October 1, 2018, monthly installment payments of $2,642

 

 

133,815

 

 

 

 

 

 

 

 

 

 

 

Total debt

 

 

6,752,709

 

 

7,011,659

 

 

 

 

 

 

 

 

 

Current portion of long-term debt, notes payable

 

 

729,692

 

 

621,052

 

Long-term portion

 

$

6,023,017

 

$

6,390,607

 


F-16



Future debt amortization:


2014

$

729,692

 

2015

 

751,448

 

2016

 

781,349

 

2017

 

715,455

 

2018

 

730,567

 

thereafter

 

3,044,198

 

 

$

6,752,709

 


NOTE 8 – RELATED PARTY TRANSACTIONS


Loans payable to related party


In June 2008, the Company entered into a note payable with its largest shareholder, Hasco Holdings, LLC.  The loan was in the amount of $150,000, and bore interest at 10% per annum.  The loan had a term of five years. As part of the acquisition of Mobility Freedom, an additional $1,850,000 note was issued to this shareholder and both these notes were combined into an aggregated ten (10) year installment note with a face value of $2,000,000 at a more favorable interest rate of 5%.  No compensation was demanded or paid for the reduced interest rate.


On March 1, 2012, Hasco Medical, Inc. completed the acquisition of Ride-Away.  Pursuant to the terms of the Stock Purchase Agreement, Hasco Medical paid Mark Lore a $3,000,000 Promissory Note bearing 5% simple interest, principal and interest payable monthly over 10 years. Subsequently Mr. Lore became an officer of the Company and has since resigned.


In December 2012, a commercial Note Payable from Hancock Bank was converted to a Note Payable from a related party which has a balance of $342,143 at December 31, 2013.


In connection with the acquisition of Auto Mobility Sales, on September 4, 2013 the Company issued a promissory note to a Related Party in the original amount of $210,000 over 60 months at an interest rate of 5%, with payments commencing on November 1, 2013.  The note matures on October 1, 2018.  Monthly installment payments are $3,963.


In connection with the acquisition of Auto Mobility Sales, on September 4, 2013 the Company issued a promissory note to a Related Party in the original amount of $140,000 over 60 months at an interest rate of 5%, with payments commencing on November 1, 2013.  The note matures on October 1, 2018.  Monthly installment payments are $2,642.


On November 26, 2013, the Company issued 1,000,000 shares valued at $21,200 in lieu of cash note payments.


Issuance of common stock


On March 1, 2012, Hasco Medical, Inc. completed the acquisition of Ride-Away.  Pursuant to the terms and conditions of the Stock Purchase Agreement, Hasco Medical paid a non-related party 176,944,450 shares of Hasco Medical, Inc. common stock, valued at $2,500,000.  Subsequently the payee became a related party as an officer of the Company.  As of April 8, 2013, the officer resigned.


In fiscal 2013, a total of 296,860 shares of common stock valued at $4,000 were issued to our former Chief Financial Officer as employee compensation.


Sale of common stock


In March 2011, in connection with the sale of the Company’s common stock, the Company issued 100,000 shares of common stock to the Company’s director for net proceeds of approximately $1,400.


NOTE 9 – STOCKHOLDERS’ EQUITY


During 2012, the Company sold 2,813,238 shares of common stock for proceeds of $39,890.


During 2012, outside parties were issued 6,802,978 shares of common stock, valued at fair market at the time of the grant, in the amount of $93,132 for services rendered.  Additionally, 6,713,288 shares of common stock were issued to employees as compensation, valued at fair market at the time of the grant, in the amount of $114,228.


F-17



During 2013, the Company sold 158,820 shares of common stock for proceeds of $2,000.


During 2013, 1,047,560 shares of common stock valued at $29,500 were issued to an officer as employee compensation, 2,845,554 shares of common stock valued at $53,350 were issued to key employees as employee compensation and 229,370 shares of common stock valued at $7,308 were issued to directors as board compensation.


NOTE 10 – STOCK OPTION PLAN


On August 31, 2012, all outstanding grants under the previous plan were cancelled. For the years ended December 31, 2013 and 2012, no stock option expense was recognized related to these grants.


As of December 31, 2013, the Company currently has no stock option plans in place.


NOTE 11 – COMMITMENTS


Operating Leases


The Ride-Away division leases office space in eleven locations from Maine to Florida under two to twenty-one year operating leases that expire in varying dates from November 30, 2015 to January 15, 2027. The Mobility Freedom division leases office space in four Florida locations under two to five year operating leases that expire at varying dates from April 30, 2014 to September 30, 2015. The Certified Mobility and Certified Auto division leases office space in Ocala, Florida under a five-year operating lease that expires on April 30, 2014.  The office lease agreements have certain escalation clauses and renewal options. Additionally, the Company has lease agreements for computer equipment, including an office copier and fax machine.  Future minimum rental payments required under these operating leases are as follows:


2014

$

1,899,906

2015

 

1,710,583

2016

 

1,467,276

2017

 

1,368,816

2018

 

1,156,610

Thereafter

 

4,609,465

 

$

12,212,656


Rent expense was approximately $1,856,000 and $1,062,000 for the years ended December 31, 2013 and 2012, respectively.


NOTE 12 – CONTINGENCIES


Company operations involve the handling and disposal of waste and hazardous material within a highly regulated oversight structure.  The Company is subjected to inspections by OSHA and other regulatory bodies.  Management believes that there are no current regulatory claims that would have a material effect on the Company’s financial position or results of operations.


The Company attempts to mitigate any claim or potential claim through its risk management (insurance) program and through its policies of quality control on all vehicles sold or upon which maintenance is performed.


From time to time the Company may be involved in legal matters and claims against the Company.  It is the opinion of Management, in consultation with our attorneys, that to the extent any such claim may have reasonable possibility of prevailing, potential awards or judgments would be of immaterial financial effect when considering the financial statements as a whole.


NOTE 13 – INCOME TAXES


Prior to its acquisition in June 2008 by HASCO Holdings, LLC, the Company was an S Corporation.  Beginning in June 2008 the Company’s tax status changed to a C Corporation.  The Company accounts for income taxes under ASC Topic 740 “Income Taxes” which requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carryforwards. ASC Topic 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets.


F-18



As of December 31, 2013 and 2012, the Company had net loss carry forwards available to reduce its future federal taxable income of approximately $0 and $1,263,000, respectively. These loss carryovers, if unused, expire through 2030. These losses may be subject to limitation under Internal Revenue Code Section 382 in the event of a more than 50% owner shift.

 

The table below summarizes the differences between the Company’s effective tax rate and the statutory federal rate as follows for income for continuing operations for the years ended December 31, 2013 and 2012:


 

 

2013

 

2012

 

Expected federal income tax expense (34%)

 

$

369,298

 

$

30,251

 

State tax expense, net of federal tax effect

 

 

255,467

 

 

50,000

 

Deferred Taxes

 

 

(13,487

 

 

 

 

 

611,278

 

 

80,251

 

Change in valuation allowance

 

 

(548,700

 

(73,578

Net income tax expense(benefit)

 

 

62,578

 

 

6,673

 


The Company has deferred tax assets which are summarized as follows:


Deferred Tax Assets

 

2013

 

2012

 

Fixed assets

 

$

126,458

 

$

 

Deferred rent

 

 

67,914

 

 

 

Allowance  for doubtful accounts

 

 

231,536

 

 

147,852

 

Inventory reserve

 

 

181,657

 

 

45,990

 

Net Operating loss carryforward

 

 

 

 

416,701

 

Total Deferred Tax Asset

 

 

607,565

 

 

610,543

 

Deferred Tax Liabilities

 

 

 

 

 

 

 

Fixed assets

 

 

 

 

69,585

 

Intangibles

 

 

45,168

 

 

 

Total deferred tax liabilities

 

 

45,168

 

 

69,585

 

Less: valuation allowance

 

 

 

 

(540,958

)

Deferred income tax

 

 

562,397

 

 

 


At December 31, 2012, the Company fully reserved against its deferred tax assets due to the uncertainty of the future utilization of such assets. The valuation allowance was fully reversed in 2013, based on the taxable income and full utilization of net operating loss carry forwards in 2013.


NOTE 14 – SEGMENT REPORTING


Accounting standards for the Disclosure about Segments of an Enterprise and Related Information establishes standards for the reporting by business enterprises of information about operating segments, products and services, geographic areas, and major customers. The method for determining what information to report is based on the way that management organizes the operations of the Company for making operational decisions and assessments of financial performance.


According to such standards, management determined that, as a consequence of our Home Healthcare Segment now comprising less than 5% of our Gross Revenue, the reporting of segment operating results is no longer relevant when considering the financial statement as a whole.


The Company recognizes its share of the earnings and losses in Adaptive Driving Alliance, LLC (“ADA”) pursuant to their ownership percentage 20%.  The Companies share of earnings totaled $201,973 for the year ended December 31, 2013.  The investment amount of $569,000 is included in Other Assets on the Consolidated Balance Sheet as of December 31, 2013.


The Company evaluates investments in unconsolidated subsidiaries for impairment when factors indicate that a decrease in the value of the investment has occurred that is not temporary. Indicators that should be evaluated for possible impairment of investments include recurring operating losses of the investee or fair value measures that are less than carrying value. Any impairment recognition is based on fair value that is not reflective of temporary conditions. Fair value is determined primarily by discounted long-term cash flows, supported by available market valuations, if applicable. The Company has not booked an impairment to its investment in ADA as of December 31, 2013, and 2012.


F-19



NOTE 15 – ACQUISITIONS AND PROFORMA FINANCIAL INFORMATION


On March 1, 2012, Hasco Medical, Inc. completed the acquisition of Ride-Away Handicap Equipment Corp., a closely-held New Hampshire corporation (Ride-Away).  Pursuant to the terms and conditions of the Stock Purchase Agreement, Hasco Medical paid the sole selling shareholder of Ride-Away $500,000 in cash and a $3,000,000 Promissory Note bearing 5% simple interest, principal and interest payable monthly over 10 years., along with 176,944,450 shares of Hasco Medical, Inc. common stock, valued at $2,500,000, for a total consideration of $6,000,000.


The following table summarizes the consideration paid and the estimated fair values of the assets acquired and liabilities assumed at the acquisition date for Ride-Away Handicap Equipment, Inc.:


ASSETS

 

February 29, 2012

 

Cash

 

$

506,648

 

A/R

 

 

4,067,578

 

Inventory

 

 

11,061,684

 

Fixed Assets

 

 

2,530,109

 

Prepaid Expenses

 

 

214,947

 

Other Assets

 

 

404,720

 

Investment in Adaptive Drive Alliance

 

 

576,609

 

 

 

 

19,362,295

 

 

 

 

 

 

Intangibles

 

 

1,460,000

 

Total Assets excluding Goodwill

 

 

20,822,295

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

Trade Accounts Payable

 

 

(9,886,017

)

Floor Plan Debt

 

 

(5,255,654

)

Notes Payable

 

 

(4,334

)

Total Liabilities

 

 

(15,146,005

)

 

 

 

 

 

Total Identifiable Assets

 

$

4,216,290

 

Goodwill

 

 

1,783,710

 

Total Purchase Price

 

$

6,000,000

 

 

 

 

 

 

Total Intangible Assets

 

 

 

 

Trade Name

 

$

990,000

 

Franchise Agreements

 

 

470,000

 

Total Intangible Assets excluding Goodwill

 

$

1,460,000

 


The $1,460,000 was allocated to the intangible assets, $990,000 relates to the Ride-Away name and $470,000 was assigned to Franchise agreements.  Both will not be amortized as those were assigned an indefinite life.  The goodwill recorded was attributable to synergies expected from the merger.  The transaction is treated as a stock purchase for tax purposes and the goodwill is not expected to be deductible for tax purposes.  The above amounts are final per the valuation documented and finalized on February 10, 2014 by CBIZ.


On September 4, 2013, Hasco Medical, Inc. completed the acquisition of Auto Mobility Sales, Inc., a closely-held Delaware corporation with locations in Ft. Lauderdale and Lake Worth, Florida.  Pursuant to the terms and conditions of the Stock Purchase Agreement, Hasco Medical paid the two sole selling shareholders of Auto Mobility Sales, Inc.,  $600,000 in cash and $350,000 in Promissory Notes bearing 5% simple interest and principle payable monthly over 5 years for a total consideration of $950,000.  Additionally, the management of Hasco Medical, Inc. considered the two sole shareholders of Auto Mobility Sales, Inc. as “key” employees and each was signed to a 2 year employment and non-compete agreement. The Company reviewed leases, financial statements, employment agreements and other significant agreements to identify potential assets or liabilities that require recognition in connection with the application of acquisition accounting under ASC 805. Intangible assets are recognized apart from goodwill when the asset arises from contractual or other legal rights, or are separable from the acquired entity such that they may be sold, transferred, licensed, rented or exchanged either on a standalone basis or in combination with a related contract, asset or liability.


F-20



The following table summarizes the consideration paid and the estimated fair values of the assets acquired and liabilities assumed at the acquisition date for Auto Mobility Sales, Inc.:


ASSETS

 

September 4, 2013

 

Cash

 

$

131,024

 

A/R

 

 

331,033

 

Inventory

 

 

375,074

 

Prepaid Expenses

 

 

47,514

 

Total Current Assets

 

 

884,645

 

Fixed Assets

 

 

10,945

 

Intangibles

 

 

270,000

 

Total Assets excluding Goodwill

 

 

1,165,590

 

 

 

 

 

 

LIABILITIES

 

 

 

Trade Accounts Payable

 

 

(71,322

)

Floor Plan Debt

 

 

(416,729

)

Deferred Tax Liability

 

 

(45,600

)

Total Liabilities

 

 

(533,651

)

 

 

 

 

 

Total Identifiable Assets

 

$

631,939

 

Goodwill

 

 

318,061

 

Total Purchase Price

 

$

950,000

 

 

 

 

 

 

Total Intangible Assets

 

 

 

 

Trade Name

 

$

40,000

 

Non-Compete Agreement

 

 

80,000

 

Franchise Agreements

 

 

150,000

 

Total Intangible Assets excluding Goodwill

 

$

270,000

 


Of the $270,000 allocated to the intangible assets, $40,000 relates to the Auto Mobility name which was assigned a life of 2.32 years, as well as $80,000 towards non-compete agreements with a 3 year life, both will be amortized.  The remaining intangible asset is $150,000 value assigned to Franchise agreements which will not be amortized as those were assigned an indefinite life.  The goodwill recorded was attributable to synergies expected from the merger.  The transaction is treated as a stock purchase for tax purposes and the goodwill is not expected to be deductible for tax purposes.  The above amounts are final per the valuation documented and drafted on November 25, 2013 by CBIZ.


Financial statements for the year ended December 31, 2012 for Auto Mobility Sales were not audited and therefore considered immaterial and not reported separately in this statement.


Revenues and expenses for the stub period September 4, 2013 (acquisition date) through December 31, 2013 for Auto Mobility Sales, Inc. were considered immaterial by the Company and therefore not reported separately in this statement.


The following table summarized the impact of the acquisition as if the acquisition date were January 1, 2013.


F-21



Hasco Medical, Inc. and Subsidiaries

Consolidated Pro Forma Statements of Operations

For the Year Ended December 31, 2013

(unaudited)


 

 

December 31, 2013

 

Revenues, net

 

$

78,771,819

 

Cost of sales

 

 

59,819,707

 

Gross Profit

 

 

18,952,112

 

 

 

 

 

 

Operating expenses:

 

 

 

 

Selling and marketing

 

 

4,910,048

 

General and administrative

 

 

12,109,644

 

Depreciation and amortization

 

 

1,154,394

 

Total operating expenses

 

 

18,174,086

 

 

 

 

 

 

Income from operations

 

 

778,026

 

 

 

 

 

 

Other income (expense)

 

 

20,485

 

 

 

 

 

 

Income from operations before income taxes

 

 

798,511

 

 

 

 

 

 

Provision for income taxes

 

 

(46,523

)

 

 

 

 

 

Net income

 

$

845,034

 

 

 

 

 

 

Earnings per share:

 

 

 

 

Basic and dilutive

 

 

0.0

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

Basic and dilutive

 

 

989,545,590

 


F-22